Corporate restructuring & advisory updates from Shoosmiths LLPhttps://www.shoosmiths.co.uk/rss/5696.aspxCorporate restructuring & advisory updates from Shoosmiths LLPen-GBShoosmithshttps://www.shoosmiths.co.uk/-/media/shoosmiths/shoosmiths-rss-image.jpg?h=144&w=144Corporate restructuring & advisory updates from Shoosmiths LLPhttps://www.shoosmiths.co.uk/rss/5696.aspx60{183E6440-C480-424B-A20A-7F3EB6243A29}https://www.shoosmiths.co.uk/client-resources/legal-updates/jurisdiction-in-insolvency-proceedings-new-case-law-13461.aspxJurisdiction in insolvency proceedings - new case law A recent Court of Session case has made clear that a Scottish court cannot wind up or make an administration order in respect of an English registered company, and the same applies to English courts and Scottish companies. We are occasionally asked whether a company, registered in England but which conducts most of its business in Scotland, can be wound up or put into administration by the Scottish courts or under Scottish procedures. Whenever asked, we have always taken the view, based on our reading of the Insolvency Act 1986 that it could not and that the English courts and procedures would have to be used. Until now, we have been unable to point to case law supporting this. However, an opinion of Lord Doherty in the Outer House of the Court of Session, delivered last week, has provided helpful confirmation of this point. The case concerned a petition which was presented in the Court of Session in Scotland by a secured creditor, seeking an administration order against an English registered company (the Company). The petitioner averred that the Court of Session has jurisdiction to hear the petition because the Company's centre of main interests (COMI), as defined in Regulation (EU) 2015/848 of the European Parliament and of the Council of 20 May 2015 on insolvency proceedings (the EU Regulation), was in Scotland. Article 3 of the EU Regulation states: '1. The courts of the Member State within the territory of which the centre of the debtor's main interests is situated shall have jurisdiction to open insolvency proceedings ('main insolvency proceedings'). The centre of main interests shall be the place where the debtor conducts the administration of its interests on a regular basis and which is ascertainable by third parties."' The issue that arose was whether Article 3 had any relevance to determining which court had jurisdiction in insolvency matters within the UK. The relevant UK law is section 120 of the Insolvency Act, which says: '(1) The Court of Session has jurisdiction to wind up any company registered in Scotland.(6) This section is subject to Article 3 of the EU Regulation (jurisdiction under EU Regulation)."' Section 117 of the Insolvency Act provides the High Court with the same jurisdiction in respect of any company registered in England and Wales. Under section 251, the court that has jurisdiction to wind up a company can also make an administration order in respect of that company. Senior counsel for the petitioner argued that section 120(6) had the effect of bringing Article 3 into UK law, where necessary for the purposes of determining jurisdiction between the courts of different parts of the UK, meaning that where a company had its COMI in Scotland, even though it was registered in England, the Court of Session could wind it up or put it into administration. Lord Doherty rejected this argument, describing it as 'untenable'. He made clear that Article 3 only determined jurisdiction between member states and not within them. The UK is treated as one jurisdiction for the purposes of the EU Regulation. Section 120(6) of the Insolvency Act means only that where a company registered in Scotland has its COMI in another member state, the courts of that member state, rather than the Court of Session, have jurisdiction to open insolvency proceedings. Section 117(7), which is in identical terms, has the same meaning in respect of companies registered in England and Wales. Within the UK, jurisdiction in insolvency proceedings is determined solely by where the company is registered. While there was no previous case law on this point and his conclusion was based on an ordinary reading of the legislation, Lord Doherty noted a large number of academic texts that agreed with his view. Although the conclusion reached by Lord Doherty is not unexpected, this case does provide useful clarity on this issue. While on this occasion the issue arose in relation to which court could make an administration order, clearly the same principle would apply when determining which insolvency rules to follow when using the out-of-court administration route or voluntary liquidation. The Scottish and English rules differ in key respects, which insolvency practitioners and legal advisers need to be alive to. Case: Bank Leumi (UK) Plc v Screw Conveyor Ltd [2017] CSOH 129 DisclaimerThis document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. Wed, 25 Oct 2017 00:00:00 +0100<![CDATA[Ben Zielinski ]]><![CDATA[ A recent Court of Session case has made clear that a Scottish court cannot wind up or make an administration order in respect of an English registered company, and the same applies to English courts and Scottish companies. We are occasionally asked whether a company, registered in England but which conducts most of its business in Scotland, can be wound up or put into administration by the Scottish courts or under Scottish procedures. Whenever asked, we have always taken the view, based on our reading of the Insolvency Act 1986 that it could not and that the English courts and procedures would have to be used. Until now, we have been unable to point to case law supporting this. However, an opinion of Lord Doherty in the Outer House of the Court of Session, delivered last week, has provided helpful confirmation of this point. The case concerned a petition which was presented in the Court of Session in Scotland by a secured creditor, seeking an administration order against an English registered company (the Company). The petitioner averred that the Court of Session has jurisdiction to hear the petition because the Company's centre of main interests (COMI), as defined in Regulation (EU) 2015/848 of the European Parliament and of the Council of 20 May 2015 on insolvency proceedings (the EU Regulation), was in Scotland. Article 3 of the EU Regulation states: '1. The courts of the Member State within the territory of which the centre of the debtor's main interests is situated shall have jurisdiction to open insolvency proceedings ('main insolvency proceedings'). The centre of main interests shall be the place where the debtor conducts the administration of its interests on a regular basis and which is ascertainable by third parties."' The issue that arose was whether Article 3 had any relevance to determining which court had jurisdiction in insolvency matters within the UK. The relevant UK law is section 120 of the Insolvency Act, which says: '(1) The Court of Session has jurisdiction to wind up any company registered in Scotland.(6) This section is subject to Article 3 of the EU Regulation (jurisdiction under EU Regulation)."' Section 117 of the Insolvency Act provides the High Court with the same jurisdiction in respect of any company registered in England and Wales. Under section 251, the court that has jurisdiction to wind up a company can also make an administration order in respect of that company. Senior counsel for the petitioner argued that section 120(6) had the effect of bringing Article 3 into UK law, where necessary for the purposes of determining jurisdiction between the courts of different parts of the UK, meaning that where a company had its COMI in Scotland, even though it was registered in England, the Court of Session could wind it up or put it into administration. Lord Doherty rejected this argument, describing it as 'untenable'. He made clear that Article 3 only determined jurisdiction between member states and not within them. The UK is treated as one jurisdiction for the purposes of the EU Regulation. Section 120(6) of the Insolvency Act means only that where a company registered in Scotland has its COMI in another member state, the courts of that member state, rather than the Court of Session, have jurisdiction to open insolvency proceedings. Section 117(7), which is in identical terms, has the same meaning in respect of companies registered in England and Wales. Within the UK, jurisdiction in insolvency proceedings is determined solely by where the company is registered. While there was no previous case law on this point and his conclusion was based on an ordinary reading of the legislation, Lord Doherty noted a large number of academic texts that agreed with his view. Although the conclusion reached by Lord Doherty is not unexpected, this case does provide useful clarity on this issue. While on this occasion the issue arose in relation to which court could make an administration order, clearly the same principle would apply when determining which insolvency rules to follow when using the out-of-court administration route or voluntary liquidation. The Scottish and English rules differ in key respects, which insolvency practitioners and legal advisers need to be alive to. Case: Bank Leumi (UK) Plc v Screw Conveyor Ltd [2017] CSOH 129 DisclaimerThis document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. ]]>{27C85411-5D01-4EFC-B3A5-5460E928708F}https://www.shoosmiths.co.uk/client-resources/legal-updates/diligence-and-insolvency-receivership-revisited-12609.aspxDiligence and insolvency: receivership revisited A significant decision issued last week by a five judge bench of the Inner House has reversed a 40 year old decision on the meaning of 'effectually executed diligence' in a receivership. Section 60 of the Insolvency Act 1986 provides that in a receivership, all persons who have 'effectually executed diligence' on any part of the property of the company which is subject to the charge by which the receiver is appointed have priority over the holder of the floating charge. In 1977, in the case of Lord Advocate v Royal Bank of Scotland ('Lord Advocate'), the Inner House determined that an arrestment, not followed by a furthcoming, was not 'effectually executed diligence' and therefore the arrester did not have priority in competition with the floating charge holder. In subsequent cases it was generally accepted (although never expressly determined) that the reasoning in Lord Advocate also applied to inhibitions which post-dated the creation of the floating charge. Although the decision in Lord Advocate has been the subject of much academic criticism over the years it has never, until now, been the subject of judicial reconsideration. The case of MacMillan v T Leith Developments Ltd (in receivership and liquidation) provided a five judge bench of the Inner House of the Court of Session with the opportunity to revisit the decision and consider afresh the meaning of 'effectually executed diligence' and the question of the competition between a floating charge holder and an inhibiting creditor in a receivership. MacMillan v T Leith Developments Ltd (in receivership and liquidation) [2017] CSIH 23 The case concerned the rights of an inhibiting creditor (MacMillan) in the receivership of T Leith Developments Ltd. The inhibition post-dated a floating charge which had been granted by the company in favour of Clydesdale Bank, but as at the date of receivership the whole debt due to the Bank was debt which had been incurred post-inhibition. The question which then arose was whether the inhibition provided MacMillan with a priority over the debt due to the Bank. In order to determine this question, MacMillan raised proceedings seeking a declarator that the inhibition was an 'effectually executed diligence' and that the receiver was obliged, when distributing the sale proceeds of the company's assets, to pay the sums to him before making payment of any balance to the Bank. MacMillan also argued that even if the inhibition was not an 'effectually executed diligence', it nevertheless provided him with a priority over the Bank's post-inhibition debt. At first instance, the commercial judge felt bound to follow the decision in Lord Advocate and rejected the argument that MacMillan had an 'effectually executed diligence' in terms of the Insolvency Act. However, he also went on to hold that a diligence could nevertheless be effective against a floating charge holder even it was not categorised as 'effectually executed diligence'. This was because an inhibition had the effect (as the law then stood) of creating a preference over post-inhibition debts. As such, the judge held that MacMillan was entitled to payment of his debt in priority to the Bank. The decision was appealed to the Inner House where the court had to consider three key issues: Whether Lord Advocate was correctly decided as regards the meaning of 'effectually executed diligence' and whether it applied to inhibitions; If Lord Advocate was not correctly decided, whether it was nevertheless appropriate for the court to overrule it; and Whether, in a competition between a floating charger holder and an inhibitor, the inhibition creates a preference over post-inhibition debts. The Lord Advocate decision As will have been clear from the opening paragraph of this article, the Inner House held that Lord Advocate had been wrongly decided. Giving the words 'effectually executed diligence' their ordinary, legal meaning simply meant that the diligence had to have proceeded upon a proper warrant and been properly executed. This was said by the court to be a 'practical and realistic' interpretation, coinciding with what a Scots lawyer and those working in the field of debt recovery would understand an effectually executed diligence to be. Both arrestments and inhibitions were therefore held to be 'effectually executed diligence' in terms of the Insolvency Act. Was it appropriate to overrule Lord Advocate? Having determined that Lord Advocate was wrongly decided, the court then had to decide whether it was nevertheless appropriate to now overrule what was described as 'such a significant authoritative precedent'. In this regard, the court had two considerations. Firstly, the principle that where Parliament re-enacts a statutory provision which has been the subject of judicial interpretation, the court should infer that it intended it to have the same judicially determined meaning (known as 'the Barras principle'). Their second consideration was the settled nature of the law and practice following Lord Advocate. The first consideration arose for reason that Lord Advocate concerned the interpretation of a provision in an Act from 1972 which eventually became Section 60 of the Insolvency Act. Although the Inner House recognised the Barras principle, it also recognised that it was not one of absolute application in ascertaining the intention of Parliament; it would be a question of circumstances in each case. In this case, the court determined that the legislative history of the Insolvency Act was such that it would not be appropriate to assume that Parliament intended to endorse Lord Advocate when it re-enacted the provision of the 1972 Act. As regards the second consideration, it was argued for the receiver that Lord Advocate had been applied 'day in and day out' given the large number of receiverships since 1977 and that the consequences of Lord Advocate being wrongly decided would be striking. Every receivership would be deemed to have proceeded on the basis of an error of law and money would have gone to the wrong persons, which could result in a flood of litigation. However, although the Inner House recognised that there will have been many cases in which the floating charge holder will have prevailed over an inhibiting or arresting creditor, it also doubted the extent to which this type of consideration should be regarded as of importance when a larger court re-examines the reasoning of a smaller bench. The court concluded that 'It would be odd indeed if this court considered that Lord Advocate had been wrongly decided as a matter of law, but declined to overrule it because of subsequent practice'. Does the inhibition create a preference over post-inhibition debts? Finally, the court considered that having already determined that an inhibiting creditor falls into the category of a person having 'effectually executed diligence', it followed that any post-inhibition indebtedness was struck at by the inhibition with the effect that the inhibitor was entitled to rank in any distribution as if those debts had not been incurred. Conclusion To use the words of the commercial judge, this case has arisen 'in the twilight of the era of receivership'. Indeed, since the effective abolition of the appointment of receivers by the Enterprise Act 2002, the number of receiverships have fallen considerably, with only five receivership appointments in Scotland in 2015-16 and only five appointments as at the end of the third quarter of 2016-17. As such, the low number of receiverships, coupled with the abolition in 2009 of the preference given to inhibitors in insolvency proceedings, means that the decision in this case is unlikely to be applicable in many situations arising in the future. Nevertheless, this remains a significant decision of a five judge bench of the Inner House, putting to bed years of academic doubt and criticism directed at the decision in Lord Advocate, as well as providing a fresh consideration of the Barras and 'settled practice' principles of statutory interpretation. Stuart Clubb leads the Commercial Dispute Resolution team in Shoosmiths' Edinburgh office and has significant expertise in insolvency litigation. DisclaimerThis document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. Wed, 15 Mar 2017 00:00:00 Z<![CDATA[ A significant decision issued last week by a five judge bench of the Inner House has reversed a 40 year old decision on the meaning of 'effectually executed diligence' in a receivership. Section 60 of the Insolvency Act 1986 provides that in a receivership, all persons who have 'effectually executed diligence' on any part of the property of the company which is subject to the charge by which the receiver is appointed have priority over the holder of the floating charge. In 1977, in the case of Lord Advocate v Royal Bank of Scotland ('Lord Advocate'), the Inner House determined that an arrestment, not followed by a furthcoming, was not 'effectually executed diligence' and therefore the arrester did not have priority in competition with the floating charge holder. In subsequent cases it was generally accepted (although never expressly determined) that the reasoning in Lord Advocate also applied to inhibitions which post-dated the creation of the floating charge. Although the decision in Lord Advocate has been the subject of much academic criticism over the years it has never, until now, been the subject of judicial reconsideration. The case of MacMillan v T Leith Developments Ltd (in receivership and liquidation) provided a five judge bench of the Inner House of the Court of Session with the opportunity to revisit the decision and consider afresh the meaning of 'effectually executed diligence' and the question of the competition between a floating charge holder and an inhibiting creditor in a receivership. MacMillan v T Leith Developments Ltd (in receivership and liquidation) [2017] CSIH 23 The case concerned the rights of an inhibiting creditor (MacMillan) in the receivership of T Leith Developments Ltd. The inhibition post-dated a floating charge which had been granted by the company in favour of Clydesdale Bank, but as at the date of receivership the whole debt due to the Bank was debt which had been incurred post-inhibition. The question which then arose was whether the inhibition provided MacMillan with a priority over the debt due to the Bank. In order to determine this question, MacMillan raised proceedings seeking a declarator that the inhibition was an 'effectually executed diligence' and that the receiver was obliged, when distributing the sale proceeds of the company's assets, to pay the sums to him before making payment of any balance to the Bank. MacMillan also argued that even if the inhibition was not an 'effectually executed diligence', it nevertheless provided him with a priority over the Bank's post-inhibition debt. At first instance, the commercial judge felt bound to follow the decision in Lord Advocate and rejected the argument that MacMillan had an 'effectually executed diligence' in terms of the Insolvency Act. However, he also went on to hold that a diligence could nevertheless be effective against a floating charge holder even it was not categorised as 'effectually executed diligence'. This was because an inhibition had the effect (as the law then stood) of creating a preference over post-inhibition debts. As such, the judge held that MacMillan was entitled to payment of his debt in priority to the Bank. The decision was appealed to the Inner House where the court had to consider three key issues: Whether Lord Advocate was correctly decided as regards the meaning of 'effectually executed diligence' and whether it applied to inhibitions; If Lord Advocate was not correctly decided, whether it was nevertheless appropriate for the court to overrule it; and Whether, in a competition between a floating charger holder and an inhibitor, the inhibition creates a preference over post-inhibition debts. The Lord Advocate decision As will have been clear from the opening paragraph of this article, the Inner House held that Lord Advocate had been wrongly decided. Giving the words 'effectually executed diligence' their ordinary, legal meaning simply meant that the diligence had to have proceeded upon a proper warrant and been properly executed. This was said by the court to be a 'practical and realistic' interpretation, coinciding with what a Scots lawyer and those working in the field of debt recovery would understand an effectually executed diligence to be. Both arrestments and inhibitions were therefore held to be 'effectually executed diligence' in terms of the Insolvency Act. Was it appropriate to overrule Lord Advocate? Having determined that Lord Advocate was wrongly decided, the court then had to decide whether it was nevertheless appropriate to now overrule what was described as 'such a significant authoritative precedent'. In this regard, the court had two considerations. Firstly, the principle that where Parliament re-enacts a statutory provision which has been the subject of judicial interpretation, the court should infer that it intended it to have the same judicially determined meaning (known as 'the Barras principle'). Their second consideration was the settled nature of the law and practice following Lord Advocate. The first consideration arose for reason that Lord Advocate concerned the interpretation of a provision in an Act from 1972 which eventually became Section 60 of the Insolvency Act. Although the Inner House recognised the Barras principle, it also recognised that it was not one of absolute application in ascertaining the intention of Parliament; it would be a question of circumstances in each case. In this case, the court determined that the legislative history of the Insolvency Act was such that it would not be appropriate to assume that Parliament intended to endorse Lord Advocate when it re-enacted the provision of the 1972 Act. As regards the second consideration, it was argued for the receiver that Lord Advocate had been applied 'day in and day out' given the large number of receiverships since 1977 and that the consequences of Lord Advocate being wrongly decided would be striking. Every receivership would be deemed to have proceeded on the basis of an error of law and money would have gone to the wrong persons, which could result in a flood of litigation. However, although the Inner House recognised that there will have been many cases in which the floating charge holder will have prevailed over an inhibiting or arresting creditor, it also doubted the extent to which this type of consideration should be regarded as of importance when a larger court re-examines the reasoning of a smaller bench. The court concluded that 'It would be odd indeed if this court considered that Lord Advocate had been wrongly decided as a matter of law, but declined to overrule it because of subsequent practice'. Does the inhibition create a preference over post-inhibition debts? Finally, the court considered that having already determined that an inhibiting creditor falls into the category of a person having 'effectually executed diligence', it followed that any post-inhibition indebtedness was struck at by the inhibition with the effect that the inhibitor was entitled to rank in any distribution as if those debts had not been incurred. Conclusion To use the words of the commercial judge, this case has arisen 'in the twilight of the era of receivership'. Indeed, since the effective abolition of the appointment of receivers by the Enterprise Act 2002, the number of receiverships have fallen considerably, with only five receivership appointments in Scotland in 2015-16 and only five appointments as at the end of the third quarter of 2016-17. As such, the low number of receiverships, coupled with the abolition in 2009 of the preference given to inhibitors in insolvency proceedings, means that the decision in this case is unlikely to be applicable in many situations arising in the future. Nevertheless, this remains a significant decision of a five judge bench of the Inner House, putting to bed years of academic doubt and criticism directed at the decision in Lord Advocate, as well as providing a fresh consideration of the Barras and 'settled practice' principles of statutory interpretation. Stuart Clubb leads the Commercial Dispute Resolution team in Shoosmiths' Edinburgh office and has significant expertise in insolvency litigation. DisclaimerThis document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. ]]>{03742F5E-0C15-4E0E-9D49-990EA93ED5B4}https://www.shoosmiths.co.uk/news/press-releases/shoosmiths-strikes-cva-deal-for-national-coffee-chain-12227.aspxShoosmiths strikes CVA deal for national coffee chain National law firm Shoosmiths, has advised DJ & C Foods Limited (t/a Love Coffee), a national coffee house chain, on a CVA deal with its creditors that will save hundreds of jobs. This latest CVA comes soon after Shoosmiths struck another CVA deal for another retail client, Grabal Alok (t/a Store Twenty One), with the measures arranged saving thousands of jobs. At a meeting of creditors held on 9 December 2016 the Company Voluntary Arrangement (CVA) proposed was approved. Damian Webb and Philip Sykes, of RSM Restructuring and Advisory LLP will now become the Supervisors of the CVA and monitor the implementation of the proposal. Love Coffee is a family-run business and committed to providing the richest coffee and fresh food which is all handmade every morning in stores. The chain's 35 stores employ more than 200 staff. Legal advice was provided to DJ &amp; C Foods by senior associate Aaron Harlow and partner James Keates of Shoosmiths LLP - the same team which worked on the Store Twenty One CVA. Vikesh Kumar Patel, Director of Love Coffee, said 'We would like to thank all of our employees, creditors and stakeholders for their support through this challenging period. The directors and management team now look forward to focussing on the future of Love Coffee and working together to make this business a success for many years to come.' Aaron Harlow, senior associate at Shoosmiths who led the deal, said: 'It has been a pleasure to advise the Company on this complex CVA deal. In our view this arrangement was in the interests of all parties concerned and as a result the business is healthier and hundreds of jobs have been preserved before Christmas. Shoosmiths has been very active in providing the retail sector with restructuring advice of late, and with our experience, are able to advise on very complex arrangements.' Damian Webb, partner at RSM who also advised DJ &amp; C Foods, commented: 'This deal is a positive outcome for all and the level of votes in favour of the CVA, demonstrates the strong relationships that the Company has with its stakeholders. It also demonstrates the tremendous support for the Love Coffee business.' Shoosmiths' corporate team advises public and private companies, management teams, investors and debt providers through the business life cycle. Shoosmiths work with businesses from start-up and first round finance through to mergers and acquisitions, MBO and MBI transactions, development funding and on exits, by way of sale, listing, private equity investment and on restructuring deals such as CVA's. Nationally, the corporate team is ranked in joint first place by deal volume in Experian's UK Deal Review and Advisor League Table. The team was recognised for its mergers and acquisitions expertise at the 2015 M&amp;A Awards, winning the Law Firm of the Year category. Mon, 12 Dec 2016 00:00:00 Z<![CDATA[Aaron Harlow ]]><![CDATA[ National law firm Shoosmiths, has advised DJ & C Foods Limited (t/a Love Coffee), a national coffee house chain, on a CVA deal with its creditors that will save hundreds of jobs. This latest CVA comes soon after Shoosmiths struck another CVA deal for another retail client, Grabal Alok (t/a Store Twenty One), with the measures arranged saving thousands of jobs. At a meeting of creditors held on 9 December 2016 the Company Voluntary Arrangement (CVA) proposed was approved. Damian Webb and Philip Sykes, of RSM Restructuring and Advisory LLP will now become the Supervisors of the CVA and monitor the implementation of the proposal. Love Coffee is a family-run business and committed to providing the richest coffee and fresh food which is all handmade every morning in stores. The chain's 35 stores employ more than 200 staff. Legal advice was provided to DJ &amp; C Foods by senior associate Aaron Harlow and partner James Keates of Shoosmiths LLP - the same team which worked on the Store Twenty One CVA. Vikesh Kumar Patel, Director of Love Coffee, said 'We would like to thank all of our employees, creditors and stakeholders for their support through this challenging period. The directors and management team now look forward to focussing on the future of Love Coffee and working together to make this business a success for many years to come.' Aaron Harlow, senior associate at Shoosmiths who led the deal, said: 'It has been a pleasure to advise the Company on this complex CVA deal. In our view this arrangement was in the interests of all parties concerned and as a result the business is healthier and hundreds of jobs have been preserved before Christmas. Shoosmiths has been very active in providing the retail sector with restructuring advice of late, and with our experience, are able to advise on very complex arrangements.' Damian Webb, partner at RSM who also advised DJ &amp; C Foods, commented: 'This deal is a positive outcome for all and the level of votes in favour of the CVA, demonstrates the strong relationships that the Company has with its stakeholders. It also demonstrates the tremendous support for the Love Coffee business.' Shoosmiths' corporate team advises public and private companies, management teams, investors and debt providers through the business life cycle. Shoosmiths work with businesses from start-up and first round finance through to mergers and acquisitions, MBO and MBI transactions, development funding and on exits, by way of sale, listing, private equity investment and on restructuring deals such as CVA's. Nationally, the corporate team is ranked in joint first place by deal volume in Experian's UK Deal Review and Advisor League Table. The team was recognised for its mergers and acquisitions expertise at the 2015 M&amp;A Awards, winning the Law Firm of the Year category. ]]>{D850EEB2-9F00-4D77-9D53-2E07E11B9215}https://www.shoosmiths.co.uk/client-resources/legal-updates/modified-universalism-in-a-scottish-insolvency-case-11984.aspx&#39;Modified universalism&#39; considered for the first time in a Scottish corporate insolvency case An opinion issued this week is the first examination by a Scottish court of the principle of 'modified universalism' and the requirements for an enforceable floating charge where all the company's property is situated in a non-UK jurisdiction. This opinion by Lord Tyre in the Court of Session concerns three companies incorporated in Scotland, but which carried on business in India. An administrator was appointed to all three companies under the Insolvency Act 1986, but the companies were also subject to various orders made in India which prohibited them from dealing with or granting charges over their assets. One of the companies had also already been placed into liquidation in India, and there was a pending Indian winding up application in respect of another. The holder of floating charges granted by the companies sought various declaratory orders concerning its rights under Scots law arising out of contracts entered into with the administrator. However, these orders were opposed by a creditor of the companies who also disputed the validity of the floating charges. Against that complex background, the Court of Session had to consider 3 key issues: Whether the principle of 'modified universalism' (namely, that a court has a common law power to recognise and grant assistance to foreign insolvency proceedings so far as it properly can) meant the powers of an administrator under the 1986 Act, in relation to assets in India or governed by Indian law, are limited by an Indian liquidation process, such that those powers are only exercisable to the extent that their exercise is recognised as legally valid by Indian law. Applying this principle, it was argued by the creditor that the Scottish court should give assistance to the Indian winding up by refraining from granting any order which hindered or was likely to hinder the Indian winding up; Where the whole of the property of a Scottish company is situated in, or governed by the law of, a non-UK jurisdiction such as India, in order to be a 'qualifying floating charge' within the meaning of paragraph 14 of Schedule B1 to the 1986 Act, does that floating charge require to be legally effective in securing the whole, or substantially the whole, of the company's property under the law of India as well as the law of Scotland? It was argued by the creditor that it did; and Whether such a floating charge is only 'enforceable' within the meaning of paragraph 16 of Schedule B1 if it is also enforceable under the law of India. Again, it was argued by the creditor that such a charge also required to be enforceable under Indian law. Modified Universalism Lord Tyre recognised the principle of modified universalism as applying in Scots law and commented that there was nothing new in a Scottish court lending assistance to foreign winding up proceedings. However, he found no support for that principle applying beyond the situation where the court exercising insolvency jurisdiction in the place of the company's incorporation required assistance to conduct an orderly winding up of its affairs on a worldwide basis. Accordingly, he rejected the creditor's argument that the powers of the administrator were only exercisable in relation to the Indian property to the extent recognised as valid under Indian law. He went on to comment that, on the contrary, the principle meant that any insolvency proceedings in India must be regarded as ancillary to the principal insolvency proceedings in Scotland. Interpretation of paragraph 14 In order to be a qualifying floating charge within the meaning of paragraph 14, Lord Tyre stated that the formal requirements set out in that paragraph (concerning the terms of the instrument and the extent of the property covered by the charge) must be complied with. In his opinion, there was nothing to indicate that any inquiry beyond the terms of the instrument creating the charge - such as inquiry as to the validity and/or practical enforceability of the security with regard to property situated outside the jurisdiction - was required. In his view, the consequence of such an interpretation in cases where a floating charge was created by a company with property overseas, could be to render the validity of the administrator's appointment uncertain, with such uncertainty depriving the administrator of the ability to effectively carry out his duties. As such, he held that the formal validity and practical enforceability under Indian law of the floating charges were irrelevant. Interpretation of paragraph 16 Paragraph 16 states that an administrator may not be appointed while a floating charge on which the appointment relies is not enforceable. In Lord Tyre's opinion, that provision simply envisaged that there would be a time during which a floating charge is not enforceable followed by a time during which it is, eg. following an event of default entitling the charge-holder to make an appointment. Again, Lord Tyre rejected the proposition put forward by the creditor and held that paragraph 16 did not preclude the appointment of an administrator unless or until it could be established that the charge would be treated by the Indian court as enforceable in relation to property situated in India or otherwise subject to Indian law. For the full text of the opinion, please click here. Stuart Clubb leads the Commercial Dispute Resolution team in Shoosmiths' Edinburgh office and has significant expertise in insolvency litigation. DisclaimerThis document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. Wed, 12 Oct 2016 00:00:00 +0100<![CDATA[ An opinion issued this week is the first examination by a Scottish court of the principle of 'modified universalism' and the requirements for an enforceable floating charge where all the company's property is situated in a non-UK jurisdiction. This opinion by Lord Tyre in the Court of Session concerns three companies incorporated in Scotland, but which carried on business in India. An administrator was appointed to all three companies under the Insolvency Act 1986, but the companies were also subject to various orders made in India which prohibited them from dealing with or granting charges over their assets. One of the companies had also already been placed into liquidation in India, and there was a pending Indian winding up application in respect of another. The holder of floating charges granted by the companies sought various declaratory orders concerning its rights under Scots law arising out of contracts entered into with the administrator. However, these orders were opposed by a creditor of the companies who also disputed the validity of the floating charges. Against that complex background, the Court of Session had to consider 3 key issues: Whether the principle of 'modified universalism' (namely, that a court has a common law power to recognise and grant assistance to foreign insolvency proceedings so far as it properly can) meant the powers of an administrator under the 1986 Act, in relation to assets in India or governed by Indian law, are limited by an Indian liquidation process, such that those powers are only exercisable to the extent that their exercise is recognised as legally valid by Indian law. Applying this principle, it was argued by the creditor that the Scottish court should give assistance to the Indian winding up by refraining from granting any order which hindered or was likely to hinder the Indian winding up; Where the whole of the property of a Scottish company is situated in, or governed by the law of, a non-UK jurisdiction such as India, in order to be a 'qualifying floating charge' within the meaning of paragraph 14 of Schedule B1 to the 1986 Act, does that floating charge require to be legally effective in securing the whole, or substantially the whole, of the company's property under the law of India as well as the law of Scotland? It was argued by the creditor that it did; and Whether such a floating charge is only 'enforceable' within the meaning of paragraph 16 of Schedule B1 if it is also enforceable under the law of India. Again, it was argued by the creditor that such a charge also required to be enforceable under Indian law. Modified Universalism Lord Tyre recognised the principle of modified universalism as applying in Scots law and commented that there was nothing new in a Scottish court lending assistance to foreign winding up proceedings. However, he found no support for that principle applying beyond the situation where the court exercising insolvency jurisdiction in the place of the company's incorporation required assistance to conduct an orderly winding up of its affairs on a worldwide basis. Accordingly, he rejected the creditor's argument that the powers of the administrator were only exercisable in relation to the Indian property to the extent recognised as valid under Indian law. He went on to comment that, on the contrary, the principle meant that any insolvency proceedings in India must be regarded as ancillary to the principal insolvency proceedings in Scotland. Interpretation of paragraph 14 In order to be a qualifying floating charge within the meaning of paragraph 14, Lord Tyre stated that the formal requirements set out in that paragraph (concerning the terms of the instrument and the extent of the property covered by the charge) must be complied with. In his opinion, there was nothing to indicate that any inquiry beyond the terms of the instrument creating the charge - such as inquiry as to the validity and/or practical enforceability of the security with regard to property situated outside the jurisdiction - was required. In his view, the consequence of such an interpretation in cases where a floating charge was created by a company with property overseas, could be to render the validity of the administrator's appointment uncertain, with such uncertainty depriving the administrator of the ability to effectively carry out his duties. As such, he held that the formal validity and practical enforceability under Indian law of the floating charges were irrelevant. Interpretation of paragraph 16 Paragraph 16 states that an administrator may not be appointed while a floating charge on which the appointment relies is not enforceable. In Lord Tyre's opinion, that provision simply envisaged that there would be a time during which a floating charge is not enforceable followed by a time during which it is, eg. following an event of default entitling the charge-holder to make an appointment. Again, Lord Tyre rejected the proposition put forward by the creditor and held that paragraph 16 did not preclude the appointment of an administrator unless or until it could be established that the charge would be treated by the Indian court as enforceable in relation to property situated in India or otherwise subject to Indian law. For the full text of the opinion, please click here. Stuart Clubb leads the Commercial Dispute Resolution team in Shoosmiths' Edinburgh office and has significant expertise in insolvency litigation. DisclaimerThis document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. ]]>{9E1E4413-C176-4B7B-92E7-142FB5B0C264}https://www.shoosmiths.co.uk/news/press-releases/11454.aspxEU Referendum result: Shoosmiths experts comment Shoosmiths' experts in competition, employment, real estate, corporate and commercial comment on the EU referendum result. Competition Law Simon Barnes, head of EU and competition at Shoosmiths The UK's competition laws mirror that of the EU's, therefore the vote to leave should in principle have very little, if any, effect on the competition law assessment of commercial agreements. The leave vote could see changes in how competition law applies to certain types of commercial arrangement, such as distribution and licensing agreements, as the current rules come from the European Commission block exemption regulations and guidelines. These could be discarded now that we have opted out of the EU. Disparities between the UK and EU's competition laws may emerge in the long term when differences in levels of enforcement and court judgements become apparent. Should the EU guidance be repealed, both the lawfulness of commercial arrangements and the compliance to varying rules in different jurisdictions will be a concern for businesses. The EU Merger Regulation will now cease to apply with deals in future potentially having to be reviewed under both the Merger Regulation and the UK's domestic merger rules. Control of State aid can now be retained by the UK, possibly allowing the UK to benefit from public support by way of grants and favourable tax regimes. However, respecting the existing EU rules on this may prove crucial in securing access to the EU single market. Similarly the existing public procurement regime will most likely stay put to promote competitiveness in public tender processes and act as a tool in negotiating single market access. Employment Law Charles Rae, employment partner at Shoosmiths Now that the UK has voted to leave the EU, once Brexit is completed the Government could in theory decide to repeal or revise a significant proportion of the UK's employment laws, where these are laws that are required as part of the UK's membership of the EU. A number of employment laws fall into this category, such as many of the anti-discrimination rights, transfer of undertakings regulations, family leave entitlements, collective consultation obligations, duties to agency workers or working time regulations. However, any kind of wholesale change seems unlikely for a number of reasons. Many of the laws in question have become so ingrained within UK businesses that it seems unlikely the Government would take steps to significantly change or remove them, especially where they provide rights to employees that have become widely accepted and valued. Moreover, much of the UK's employment legislation pre-dates the EU imposed ones, and have instead been built upon by later EU requirements, so the foundations are already in place. For instance, the UK already had race and disability discrimination rules before the EU wide requirements were introduced. Many feel that more likely than repealing laws, the Government would take the opportunity to smooth off some of the less popular requirements set down by the EU, for example restrictions on changing terms and conditions following a TUPE transfer. We may also find that freedom of movement within the EU leaves uncertainty as to the status of EU nationals who already work in the UK (and vice versa). Many businesses rely on EU workers and will want to be satisfied that their right to remain in the UK (and to therefore provide their services) is not going to be adversely affected. Equally, it isn't clear what a Brexit will mean for EU nationals currently working in the UK. Many potential solutions have been mooted, such as a compromise that would see current EU migrants given a set period of time to remain in the UK during which they can apply for citizenship, in return for UK citizens currently abroad to remain where they are on the same basis. Real Estate Simon Boss, real estate partner at Shoosmiths Given that the commercial real estate deals flow has already been impacted by the uncertainty that abounded in the run up to the referendum, we may see some clients putting deals on hold in the wake of the leave result. Equally, we may see some pick up in transactions as some investors look to reduce their exposure to the UK market. For some funds and investors this may present an opportunity to acquire at an attractive price. Since its creation, no Member State has ever left the European Union so we have no clear precedent in regards to what happens next and this is as much the case for the real estate sector as it is for the wider commercial arena. Withdrawal from the EU could have major implications for the construction industry, which is already tackling a labour shortage. Tightened immigration control could now exacerbate this issue, given that a large percentage of EU immigrants work in the construction sector. What many will be waiting most anxiously to determine though is how far foreign investment into British real estate will be impacted by our withdrawal from the EU. Will the position of Britain as a primary choice for commercial real estate investment in Europe suffer? Until some certainty returns to the market, this could well reduce the UK's reputation as a safe haven for real estate investment. Corporate - Private Equity Kieran Toal, corporate partner at Shoosmiths We're now in uncharted waters - no member state has left the EU since its inception and how the economy and UK businesses will fare is hard to predict. However in terms of the Private Equity market, we are dealing with the relative unknown, but investors still need to invest. Admittedly there may be a slow start while buyers take stock but, once the wheels begin to turn, there is a plethora of cash-rich private equity houses with capital to invest and UK businesses with rich growth potential aren't going to lose their appeal overnight. There may well be a shift in focus, with businesses which are particularly reliant on European markets becoming less attractive propositions. But for the most part, likelihood is that the inertia caused by uncertainty over the vote will slowly lift. Commercial - Creative industries Laura Harper, partner in the national Intellectual Property &amp; Creative Industries group and head of the IP &amp; Creative Industries at Shoosmiths I think there is going to be concern and disappointment in the creative industries at this outcome. There are many questions that will have to be answered around funding, free movement of people and collaboration across film, television and the performing arts. Certainly it's no exaggeration to say regulation around Trade Mark protection is going to need redrafting creating uncertainty for companies here and abroad who own EU Trade Marks. The 'out' vote means there is going to have to be a transitional period where companies who have an EU Trade Mark will potentially lose protection in the UK and they will need to audit their TM portfolios to identify the areas which will require attention to ensure they apply for the necessary national coverage. As legal advisers we will provide advice on the basis that UK protection under EU trade marks will be eventually lost until we receive clarity on the transitional provisions to ensure that our clients' interests are fully protected. The patent system has taken decades to negotiate - the Unified Patent and Unified Patent Court was due to be implemented in 2017. With this vote this will probably be delayed and add an extra layer of process to the new Unified Patent and Court procedure.Fri, 24 Jun 2016 00:00:00 +0100<![CDATA[ Shoosmiths' experts in competition, employment, real estate, corporate and commercial comment on the EU referendum result. Competition Law Simon Barnes, head of EU and competition at Shoosmiths The UK's competition laws mirror that of the EU's, therefore the vote to leave should in principle have very little, if any, effect on the competition law assessment of commercial agreements. The leave vote could see changes in how competition law applies to certain types of commercial arrangement, such as distribution and licensing agreements, as the current rules come from the European Commission block exemption regulations and guidelines. These could be discarded now that we have opted out of the EU. Disparities between the UK and EU's competition laws may emerge in the long term when differences in levels of enforcement and court judgements become apparent. Should the EU guidance be repealed, both the lawfulness of commercial arrangements and the compliance to varying rules in different jurisdictions will be a concern for businesses. The EU Merger Regulation will now cease to apply with deals in future potentially having to be reviewed under both the Merger Regulation and the UK's domestic merger rules. Control of State aid can now be retained by the UK, possibly allowing the UK to benefit from public support by way of grants and favourable tax regimes. However, respecting the existing EU rules on this may prove crucial in securing access to the EU single market. Similarly the existing public procurement regime will most likely stay put to promote competitiveness in public tender processes and act as a tool in negotiating single market access. Employment Law Charles Rae, employment partner at Shoosmiths Now that the UK has voted to leave the EU, once Brexit is completed the Government could in theory decide to repeal or revise a significant proportion of the UK's employment laws, where these are laws that are required as part of the UK's membership of the EU. A number of employment laws fall into this category, such as many of the anti-discrimination rights, transfer of undertakings regulations, family leave entitlements, collective consultation obligations, duties to agency workers or working time regulations. However, any kind of wholesale change seems unlikely for a number of reasons. Many of the laws in question have become so ingrained within UK businesses that it seems unlikely the Government would take steps to significantly change or remove them, especially where they provide rights to employees that have become widely accepted and valued. Moreover, much of the UK's employment legislation pre-dates the EU imposed ones, and have instead been built upon by later EU requirements, so the foundations are already in place. For instance, the UK already had race and disability discrimination rules before the EU wide requirements were introduced. Many feel that more likely than repealing laws, the Government would take the opportunity to smooth off some of the less popular requirements set down by the EU, for example restrictions on changing terms and conditions following a TUPE transfer. We may also find that freedom of movement within the EU leaves uncertainty as to the status of EU nationals who already work in the UK (and vice versa). Many businesses rely on EU workers and will want to be satisfied that their right to remain in the UK (and to therefore provide their services) is not going to be adversely affected. Equally, it isn't clear what a Brexit will mean for EU nationals currently working in the UK. Many potential solutions have been mooted, such as a compromise that would see current EU migrants given a set period of time to remain in the UK during which they can apply for citizenship, in return for UK citizens currently abroad to remain where they are on the same basis. Real Estate Simon Boss, real estate partner at Shoosmiths Given that the commercial real estate deals flow has already been impacted by the uncertainty that abounded in the run up to the referendum, we may see some clients putting deals on hold in the wake of the leave result. Equally, we may see some pick up in transactions as some investors look to reduce their exposure to the UK market. For some funds and investors this may present an opportunity to acquire at an attractive price. Since its creation, no Member State has ever left the European Union so we have no clear precedent in regards to what happens next and this is as much the case for the real estate sector as it is for the wider commercial arena. Withdrawal from the EU could have major implications for the construction industry, which is already tackling a labour shortage. Tightened immigration control could now exacerbate this issue, given that a large percentage of EU immigrants work in the construction sector. What many will be waiting most anxiously to determine though is how far foreign investment into British real estate will be impacted by our withdrawal from the EU. Will the position of Britain as a primary choice for commercial real estate investment in Europe suffer? Until some certainty returns to the market, this could well reduce the UK's reputation as a safe haven for real estate investment. Corporate - Private Equity Kieran Toal, corporate partner at Shoosmiths We're now in uncharted waters - no member state has left the EU since its inception and how the economy and UK businesses will fare is hard to predict. However in terms of the Private Equity market, we are dealing with the relative unknown, but investors still need to invest. Admittedly there may be a slow start while buyers take stock but, once the wheels begin to turn, there is a plethora of cash-rich private equity houses with capital to invest and UK businesses with rich growth potential aren't going to lose their appeal overnight. There may well be a shift in focus, with businesses which are particularly reliant on European markets becoming less attractive propositions. But for the most part, likelihood is that the inertia caused by uncertainty over the vote will slowly lift. Commercial - Creative industries Laura Harper, partner in the national Intellectual Property &amp; Creative Industries group and head of the IP &amp; Creative Industries at Shoosmiths I think there is going to be concern and disappointment in the creative industries at this outcome. There are many questions that will have to be answered around funding, free movement of people and collaboration across film, television and the performing arts. Certainly it's no exaggeration to say regulation around Trade Mark protection is going to need redrafting creating uncertainty for companies here and abroad who own EU Trade Marks. The 'out' vote means there is going to have to be a transitional period where companies who have an EU Trade Mark will potentially lose protection in the UK and they will need to audit their TM portfolios to identify the areas which will require attention to ensure they apply for the necessary national coverage. As legal advisers we will provide advice on the basis that UK protection under EU trade marks will be eventually lost until we receive clarity on the transitional provisions to ensure that our clients' interests are fully protected. The patent system has taken decades to negotiate - the Unified Patent and Unified Patent Court was due to be implemented in 2017. With this vote this will probably be delayed and add an extra layer of process to the new Unified Patent and Court procedure.]]>{16E4202F-80AE-472E-8678-97E602ECC8E5}https://www.shoosmiths.co.uk/client-resources/legal-updates/all-aboard-the-insolvency-express-11287.aspxAll aboard the insolvency express As we reach the 30th anniversary of the Insolvency Act 1986, the legislators have clearly decided it is time to dust the profession down and bring out a shiny new model for us to hop aboard and take a journey (for some) into the unknown. But what do all these changes mean in practice, and is there any theme running through them? Fee regime The new fee regime that commenced for insolvency practitioners on 1 October 2015 has caused a great deal of debate throughout the profession. The bullet-point headlines on this piece of secondary legislation (The Insolvency (Amendment) Rules 2015) are that practitioners can no longer rely on an 'open cheque book' with regard to fees and disbursements. The changes in the 2015 rules aim to end the 'uncertainty of unlimited hourly charges', following a 2010 Office of Fair Trading review and a 2013 government review (the Kempson review), both of which highlighted creditor concerns that the current system could lead to excessive fees being charged. The government's stated aim for the changes is to ensure that fees are fair and reasonable, and to provide increased transparency, while giving practitioners 'the opportunity to demonstrate how their services provide value for money'. The new regime only applies to insolvency practitioners acting as administrators, liquidators (other than in a members' voluntary liquidation), and trustees in bankruptcy. It provides that such officeholders will have to supply fee estimates to creditors, giving details of the likely remuneration they will charge, and any expenses that are likely to be incurred in the case. These estimates must be provided before the basis of the officeholder's remuneration is determined. The approval of the fee estimate will then cap remuneration at that level, unless further approval is sought. Interestingly, although an estimate of expenses is required, there is no requirement for the expenses to be approved. In any insolvency case, the majority of expenses are often legal fees, of course. Thus, at quite short notice, insolvency firms have had to get used to producing an accurate fee estimate at the outset of a case and to be aware that, unless they are prepared to work on fixed fees or a percentage of realisations, they cannot go beyond that estimate without seeking further approval. It is interesting to see the different approaches of firms and the variety of costing matrixes adopted. Without doubt, one size does not fit all, and the new regime gives creditors an opportunity to drive matters to a much greater degree than in the past. But it also gives practitioners an opportunity to be innovative in their approach. Pre-pack pool Hot on the heels of these changes was the commencement of the operation of the Pre-Pack Pool in administration appointments from the beginning of November 2015. It is important to remember that this is a voluntary referral code, although there are reserved powers in the Small Business, Enterprise and Employment Act 2015 for the referral process to be compulsory. The government has given itself a longstop date of 26 May 2020 for this to happen, so watch this space. The thrust of the operation of the pool is to try to give creditors more confidence in the pre-packaged administration process, by bringing in an independent person to express a view on the suitability or otherwise of the process. The initial statistics coming out of the recognised professional bodies have been interesting. In the first couple of months, six cases were referred and all were deemed positive by the pool, with two 'qualified'. However, the Institute of Chartered Accountants in England and Wales has stated that it has seen ten 'connected party' pre-packs and only one of those was referred to the pool, and the other major recognised professional body, the Insolvency Practitioners Association, reported seeing nine connected party cases in the initial two months or so, none of which were referred to the pool. A mixed message indeed. Perhaps it is still too early to say exactly how these new (voluntary) reforms are working. Those of us who work in this area will continue to monitor it carefully. CFA exemption The area of investigation and insolvency recoveries has always been a mainstream activity in the insolvency profession and one that has, understandably, often been the remit of insolvency lawyers. Thus, as we travelled along the insolvency railroad, many of us were concerned that we were being effectively derailed by a very disappointing change, which again will occur at the beginning of April 2016. That is the loss to the insolvency profession of the conditional fee agreement (CFA) exemption from the Legal Aid, Sentencing and Punishment of Offenders Act 2012. Much has been written about this and the need to view insolvency litigation in a different light from normal civil litigation, but (to mix my transport theme) that ship has now sailed and will almost certainly not return to our harbour. It will be interesting to see if the approach of practitioners to 'no win, no fee' cases changes: it is hoped that innovation may be shown and there are already early signs that some new insurance-backed litigation products are coming onto the market. Of course, despite loose reporting in some quarters, this is not the end of CFA work, but an end to the increased percentage recoveries that were previously claimed and the ability to pass an adverse cost premium of the insurance policy to the (losing) defendant. My final important point on this subject is to recommend that all lawyers who work in this field read the recent case of Stevensdrake Ltd v Hunt [2016] EWHC 342 (Ch), which reviews the whole area of the liability of an insolvency practitioner in respect of a CFA. Much practical guidance can be gained from that case. This change must also be seen in the context of the widening of the ability of officeholders to take wrongful and fraudulent trading actions, whether they be an administrator or a liquidator, and the extra powers for officeholders to assign actions through the new sections 117 to 119 of the Small Business, Enterprise and Employment Act, and linked amendments to the Insolvency Act by section 2462D which came into force on 1 October 2015. This should perhaps be considered in conjunction with the removal of the CFA exemption. Will we see more activity in this arena? As with many of the recent changes, I believe that we will need to review matters after 12 months, but it must be a distinct possibility. If such actions promote greater and quicker returns for creditors then the process is to be encouraged. However, all practitioners will have to consider carefully whether the assignment of potential recoveries promotes any conflict of interest issues. Online debtor petition process Whereas many of the recent changes have concentrated on corporate insolvency (and, as stated earlier, there are a number of other interesting areas which should be considered in a longer article, notably around the whole subject of directors and holding them to account), personal insolvency has not been immune to change. Hot off the press is the new online debtor petition process, which commences on 6 April 2016. The relevant law is to be found at section 71 of the Enterprise and Regulatory Reform Act 2013. In essence, this process is creating a swifter and, it is hoped, more efficient way of dealing with debtor bankruptcy petitions than has existed to date, through utilising the court process. We will all now need to get used to an adjudicator. Amazingly, the new fee of £130 is a reduction on the old one of £180 - this must be the only legal fee to come down in recent years. Will debtor petitions increase in popularity? Possibly, but with bankruptcy generally standing at the lowest figure since 1984, it will need quite a shift to get back to the numbers that were seen pre-recession. The new online process and the creation of the adjudicator post will certainly streamline matters, and it is hoped that there will be enough checks and balances to ensure that those who potentially had cases to answer on antecedent transactions and other issues will still be suitably investigated. And finally, we still await the final draft of the new Insolvency Rules 2016. Now they really will mean we need to hop on the new insolvency express. Happy travelling! The author of this article is Stephen Allinson, first published in the April edition of the Solicitor's Journal. DisclaimerThis document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. Thu, 12 May 2016 00:00:00 +0100<![CDATA[James Keates ]]><![CDATA[ As we reach the 30th anniversary of the Insolvency Act 1986, the legislators have clearly decided it is time to dust the profession down and bring out a shiny new model for us to hop aboard and take a journey (for some) into the unknown. But what do all these changes mean in practice, and is there any theme running through them? Fee regime The new fee regime that commenced for insolvency practitioners on 1 October 2015 has caused a great deal of debate throughout the profession. The bullet-point headlines on this piece of secondary legislation (The Insolvency (Amendment) Rules 2015) are that practitioners can no longer rely on an 'open cheque book' with regard to fees and disbursements. The changes in the 2015 rules aim to end the 'uncertainty of unlimited hourly charges', following a 2010 Office of Fair Trading review and a 2013 government review (the Kempson review), both of which highlighted creditor concerns that the current system could lead to excessive fees being charged. The government's stated aim for the changes is to ensure that fees are fair and reasonable, and to provide increased transparency, while giving practitioners 'the opportunity to demonstrate how their services provide value for money'. The new regime only applies to insolvency practitioners acting as administrators, liquidators (other than in a members' voluntary liquidation), and trustees in bankruptcy. It provides that such officeholders will have to supply fee estimates to creditors, giving details of the likely remuneration they will charge, and any expenses that are likely to be incurred in the case. These estimates must be provided before the basis of the officeholder's remuneration is determined. The approval of the fee estimate will then cap remuneration at that level, unless further approval is sought. Interestingly, although an estimate of expenses is required, there is no requirement for the expenses to be approved. In any insolvency case, the majority of expenses are often legal fees, of course. Thus, at quite short notice, insolvency firms have had to get used to producing an accurate fee estimate at the outset of a case and to be aware that, unless they are prepared to work on fixed fees or a percentage of realisations, they cannot go beyond that estimate without seeking further approval. It is interesting to see the different approaches of firms and the variety of costing matrixes adopted. Without doubt, one size does not fit all, and the new regime gives creditors an opportunity to drive matters to a much greater degree than in the past. But it also gives practitioners an opportunity to be innovative in their approach. Pre-pack pool Hot on the heels of these changes was the commencement of the operation of the Pre-Pack Pool in administration appointments from the beginning of November 2015. It is important to remember that this is a voluntary referral code, although there are reserved powers in the Small Business, Enterprise and Employment Act 2015 for the referral process to be compulsory. The government has given itself a longstop date of 26 May 2020 for this to happen, so watch this space. The thrust of the operation of the pool is to try to give creditors more confidence in the pre-packaged administration process, by bringing in an independent person to express a view on the suitability or otherwise of the process. The initial statistics coming out of the recognised professional bodies have been interesting. In the first couple of months, six cases were referred and all were deemed positive by the pool, with two 'qualified'. However, the Institute of Chartered Accountants in England and Wales has stated that it has seen ten 'connected party' pre-packs and only one of those was referred to the pool, and the other major recognised professional body, the Insolvency Practitioners Association, reported seeing nine connected party cases in the initial two months or so, none of which were referred to the pool. A mixed message indeed. Perhaps it is still too early to say exactly how these new (voluntary) reforms are working. Those of us who work in this area will continue to monitor it carefully. CFA exemption The area of investigation and insolvency recoveries has always been a mainstream activity in the insolvency profession and one that has, understandably, often been the remit of insolvency lawyers. Thus, as we travelled along the insolvency railroad, many of us were concerned that we were being effectively derailed by a very disappointing change, which again will occur at the beginning of April 2016. That is the loss to the insolvency profession of the conditional fee agreement (CFA) exemption from the Legal Aid, Sentencing and Punishment of Offenders Act 2012. Much has been written about this and the need to view insolvency litigation in a different light from normal civil litigation, but (to mix my transport theme) that ship has now sailed and will almost certainly not return to our harbour. It will be interesting to see if the approach of practitioners to 'no win, no fee' cases changes: it is hoped that innovation may be shown and there are already early signs that some new insurance-backed litigation products are coming onto the market. Of course, despite loose reporting in some quarters, this is not the end of CFA work, but an end to the increased percentage recoveries that were previously claimed and the ability to pass an adverse cost premium of the insurance policy to the (losing) defendant. My final important point on this subject is to recommend that all lawyers who work in this field read the recent case of Stevensdrake Ltd v Hunt [2016] EWHC 342 (Ch), which reviews the whole area of the liability of an insolvency practitioner in respect of a CFA. Much practical guidance can be gained from that case. This change must also be seen in the context of the widening of the ability of officeholders to take wrongful and fraudulent trading actions, whether they be an administrator or a liquidator, and the extra powers for officeholders to assign actions through the new sections 117 to 119 of the Small Business, Enterprise and Employment Act, and linked amendments to the Insolvency Act by section 2462D which came into force on 1 October 2015. This should perhaps be considered in conjunction with the removal of the CFA exemption. Will we see more activity in this arena? As with many of the recent changes, I believe that we will need to review matters after 12 months, but it must be a distinct possibility. If such actions promote greater and quicker returns for creditors then the process is to be encouraged. However, all practitioners will have to consider carefully whether the assignment of potential recoveries promotes any conflict of interest issues. Online debtor petition process Whereas many of the recent changes have concentrated on corporate insolvency (and, as stated earlier, there are a number of other interesting areas which should be considered in a longer article, notably around the whole subject of directors and holding them to account), personal insolvency has not been immune to change. Hot off the press is the new online debtor petition process, which commences on 6 April 2016. The relevant law is to be found at section 71 of the Enterprise and Regulatory Reform Act 2013. In essence, this process is creating a swifter and, it is hoped, more efficient way of dealing with debtor bankruptcy petitions than has existed to date, through utilising the court process. We will all now need to get used to an adjudicator. Amazingly, the new fee of £130 is a reduction on the old one of £180 - this must be the only legal fee to come down in recent years. Will debtor petitions increase in popularity? Possibly, but with bankruptcy generally standing at the lowest figure since 1984, it will need quite a shift to get back to the numbers that were seen pre-recession. The new online process and the creation of the adjudicator post will certainly streamline matters, and it is hoped that there will be enough checks and balances to ensure that those who potentially had cases to answer on antecedent transactions and other issues will still be suitably investigated. And finally, we still await the final draft of the new Insolvency Rules 2016. Now they really will mean we need to hop on the new insolvency express. Happy travelling! The author of this article is Stephen Allinson, first published in the April edition of the Solicitor's Journal. DisclaimerThis document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. ]]>{87394DDF-5807-45F2-91AA-A23C7B423CDA}https://www.shoosmiths.co.uk/news/press-releases/jobs-saved-before-christmas-furnishings-company-10785.aspxNearly four hundred jobs saved before Christmas at national furnishings company Hundreds of jobs have been saved just a week before Christmas at a UK interior furnishings company, after a rescue deal was struck with administrators of Laidlaw Interiors Group. Aaron Harlow National law firm Shoosmiths led the deal which ensured that 370 workers whose jobs were under threat after administrators were called in will now remain employed. The firm provided insolvency and restructuring advice to Valtegra - a European-based privately held investment company - as part of its acquisition of part of the Laidlaw Interiors Group, from administrators at Deloitte LLP. The acquisition, which included Laidlaw's Longden Doors, Cubicle Systems, Fitzpatrick and Komfort divisions, was funded by Valtegra which has provided significant investment to develop and strengthen those businesses. Francis Milner, of Valtegra said: 'We recognised that there were viable businesses within the Laidlaw Interiors Group. We have a management team in place in each of the divisions which I am confident will enable us to create profitable and sustainable businesses going forward. This is a further exciting investment for us and a strong indication of our support for UK manufacturing.' The Shoosmiths team was led by insolvency Partner James Keates, Senior Associate Aaron Harlow, and Solicitor Natalia Tombs. The team worked against tight deadlines on a complex transaction, in order to complete the deal and secure the future of the business and the employment of its staff before the Christmas period. Aaron Harlow of Shoosmiths said: 'We were pleased to be able to work again with the Valtegra team in closing this transaction, which has saved many jobs in the week before Christmas. This investment will be a further boost for UK industry. This is our second successful deal for Valtegra this year, having completed a similar transaction in November.' Shoosmiths' corporate team has advised public and private companies, management teams, investors and debt providers through the business life cycle. Shoosmiths work with businesses from start-up and first round finance through to mergers and acquisitions, MBO and MBI transactions, development funding and on exits, by way of sale, listing or private equity investment. The national corporate team has been placed second by deal volume in Experian's UK Deal Review and Advisor League Table and eighth by deal volume in Europe. The firm recently won Law Firm of the Year at both the British Legal and M&amp;A Awards 2015. Mon, 21 Dec 2015 00:00:00 Z<![CDATA[James Keates Aaron Harlow ]]><![CDATA[ Hundreds of jobs have been saved just a week before Christmas at a UK interior furnishings company, after a rescue deal was struck with administrators of Laidlaw Interiors Group. Aaron Harlow National law firm Shoosmiths led the deal which ensured that 370 workers whose jobs were under threat after administrators were called in will now remain employed. The firm provided insolvency and restructuring advice to Valtegra - a European-based privately held investment company - as part of its acquisition of part of the Laidlaw Interiors Group, from administrators at Deloitte LLP. The acquisition, which included Laidlaw's Longden Doors, Cubicle Systems, Fitzpatrick and Komfort divisions, was funded by Valtegra which has provided significant investment to develop and strengthen those businesses. Francis Milner, of Valtegra said: 'We recognised that there were viable businesses within the Laidlaw Interiors Group. We have a management team in place in each of the divisions which I am confident will enable us to create profitable and sustainable businesses going forward. This is a further exciting investment for us and a strong indication of our support for UK manufacturing.' The Shoosmiths team was led by insolvency Partner James Keates, Senior Associate Aaron Harlow, and Solicitor Natalia Tombs. The team worked against tight deadlines on a complex transaction, in order to complete the deal and secure the future of the business and the employment of its staff before the Christmas period. Aaron Harlow of Shoosmiths said: 'We were pleased to be able to work again with the Valtegra team in closing this transaction, which has saved many jobs in the week before Christmas. This investment will be a further boost for UK industry. This is our second successful deal for Valtegra this year, having completed a similar transaction in November.' Shoosmiths' corporate team has advised public and private companies, management teams, investors and debt providers through the business life cycle. Shoosmiths work with businesses from start-up and first round finance through to mergers and acquisitions, MBO and MBI transactions, development funding and on exits, by way of sale, listing or private equity investment. The national corporate team has been placed second by deal volume in Experian's UK Deal Review and Advisor League Table and eighth by deal volume in Europe. The firm recently won Law Firm of the Year at both the British Legal and M&amp;A Awards 2015. ]]>{5CA963E4-7721-47A1-B1FB-CACC6192C570}https://www.shoosmiths.co.uk/services/corporate-restructuring-and-advisory.aspxCorporate restructuring &amp; advisoryExcellent service and legal advice from a team specialising in insolvency delivering an amazing client experience for major high street lenders, insolvency practitioners and companies in the UK.Wed, 07 Oct 2015 00:00:00 +0100<![CDATA[James Keates Sarah Teal ]]><![CDATA[Excellent service and legal advice from a team specialising in insolvency delivering an amazing client experience for major high street lenders, insolvency practitioners and companies in the UK.]]>{CF810EAF-C78B-40EC-85F6-74F72A94F09B}https://www.shoosmiths.co.uk/client-resources/legal-updates/plans-force-it-provide-services-insolvent-customers-8438.aspxDon&#39;t leave me this way? Plans to force IT suppliers to continue to provide services to insolvent customers The Insolvency Service is undertaking a consultation exercise regarding a plan to ensure the continuity of supply of IT services to insolvent companies in a similar manner to the current legislation regarding the supply of essential utilities. The effect of the proposed order would mean that many IT suppliers may not be able to use their current contractual right to terminate their agreement with the customer or charge extra fees in the event of their customer going into administration or entering into a voluntary arrangement. The challenge for the IT industry is that unlike the utilities sector, it is made up of a large number of small to medium sized enterprises, particularly in the reseller sector. These businesses face significant cash flows issues and the failure to receive payment (whilst still being expected to provide services and so incur costs) is likely to pose real financial difficulties for them. This will be exacerbated by the limited availability and rising cost of overdrafts for these businesses. Introducing a turnover/profit test may provide some protection for the smaller end of the sector, but may pose a barrier to growth. The draft order does give the supplier the right to apply to court for permission to terminate the contract if the supplier believes that being required to continue to supply will cause them "undue hardship", but it is unclear what this would constitute. Alternatively, the supplier may require the administrator to provide a personal guarantee in respect of the payment of the contract charges, failing which the supplier is entitled to terminate the contract. In our experience many larger businesses (particularly those in the financial services industry) are already alive to the issue of continuity of IT services and have managed to secure contractually the protection they need for critical IT services. These contractual rights typically go beyond the administration/voluntary arrangement limit discussed in this consultation and usually the supplier's right to terminate is limited to non-payment of invoices over a certain threshold value. So in some respects this proposed legislative change reflects the contractual practice of larger businesses with greater commercial leverage. Responses to the consultation exercise must be submitted by Wednesday 8th October and so remaining time is short to submit a response. Any client wishing to be assisted with the submission of their response should contact Craig Armstrong or Amanda Coale. https://www.gov.uk/government/consultations/continuity-of-supply-of-essential-services-to-insolvent-businesses DisclaimerThis document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. Thu, 02 Oct 2014 00:00:00 +0100<![CDATA[Craig Armstrong ]]><![CDATA[ The Insolvency Service is undertaking a consultation exercise regarding a plan to ensure the continuity of supply of IT services to insolvent companies in a similar manner to the current legislation regarding the supply of essential utilities. The effect of the proposed order would mean that many IT suppliers may not be able to use their current contractual right to terminate their agreement with the customer or charge extra fees in the event of their customer going into administration or entering into a voluntary arrangement. The challenge for the IT industry is that unlike the utilities sector, it is made up of a large number of small to medium sized enterprises, particularly in the reseller sector. These businesses face significant cash flows issues and the failure to receive payment (whilst still being expected to provide services and so incur costs) is likely to pose real financial difficulties for them. This will be exacerbated by the limited availability and rising cost of overdrafts for these businesses. Introducing a turnover/profit test may provide some protection for the smaller end of the sector, but may pose a barrier to growth. The draft order does give the supplier the right to apply to court for permission to terminate the contract if the supplier believes that being required to continue to supply will cause them "undue hardship", but it is unclear what this would constitute. Alternatively, the supplier may require the administrator to provide a personal guarantee in respect of the payment of the contract charges, failing which the supplier is entitled to terminate the contract. In our experience many larger businesses (particularly those in the financial services industry) are already alive to the issue of continuity of IT services and have managed to secure contractually the protection they need for critical IT services. These contractual rights typically go beyond the administration/voluntary arrangement limit discussed in this consultation and usually the supplier's right to terminate is limited to non-payment of invoices over a certain threshold value. So in some respects this proposed legislative change reflects the contractual practice of larger businesses with greater commercial leverage. Responses to the consultation exercise must be submitted by Wednesday 8th October and so remaining time is short to submit a response. Any client wishing to be assisted with the submission of their response should contact Craig Armstrong or Amanda Coale. https://www.gov.uk/government/consultations/continuity-of-supply-of-essential-services-to-insolvent-businesses DisclaimerThis document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. ]]>{284DF1FC-C5D1-487A-BC58-4C2FF3430511}https://www.shoosmiths.co.uk/client-resources/legal-updates/pre-packs-do-they-have-a-future-8152.aspxPre-packs - do they have a future? In June this year Teresa Graham published her Report on Pre-pack Administrations. As Vince Cable noted in his foreword to the Report: 'Pre-pack administrations has been much criticised in some quarters in recent years'. Critics of the process have agreed that it lacks transparency and does not result in the best value being achieved for businesses which are sold to the detriment of unsecured creditors. The Graham Review made a number of recommendations to try to improve the reputation of this procedure. These include: Connected parties to a proposed pre-pack deal should, on a voluntary basis, disclose details of the deal to a so called "pre-pack pool" for the pool to comment on. This sounds complicated and it remains to be seen whether in practice such arrangements will work out. The connected party, again on a voluntary basis, completes a viability review on the new company. The circular to creditors from the insolvency practitioner notifying them of the content of a pre-pack arrangement is strengthened in various key areas. All marketing of the pre-pack business must comply with six principles of good marketing. The status of valuers giving valuations which underpin the pre-pack transaction must have PI insurance. There is an important sting in the tail of the Report however which should not be overlooked. After 66 pages of review and detailed recommendations the Reports states: "Should these measures fail to have the desired impact .. the Government should consider legislating." The Government has not needed much encouragement to adopt this suggestion and has proposed in the Small Business, Enterprise and Employment Bill published on 26 June to create a reserve power to prohibit pre-pack administration sales to connected parties if certain criteria are not met, for use if non-legislative voluntary solutions do not have the desired effect. It remains to be seen whether this provision represents the slow-burning fuse which may eventually bring an end to the use of pre-packs between connected parties. Time will tell but if the voluntary measures are not shown to be effective this is certainly now a real possibility. Tue, 12 Aug 2014 00:00:00 +0100<![CDATA[Andrew Pickin ]]><![CDATA[ In June this year Teresa Graham published her Report on Pre-pack Administrations. As Vince Cable noted in his foreword to the Report: 'Pre-pack administrations has been much criticised in some quarters in recent years'. Critics of the process have agreed that it lacks transparency and does not result in the best value being achieved for businesses which are sold to the detriment of unsecured creditors. The Graham Review made a number of recommendations to try to improve the reputation of this procedure. These include: Connected parties to a proposed pre-pack deal should, on a voluntary basis, disclose details of the deal to a so called "pre-pack pool" for the pool to comment on. This sounds complicated and it remains to be seen whether in practice such arrangements will work out. The connected party, again on a voluntary basis, completes a viability review on the new company. The circular to creditors from the insolvency practitioner notifying them of the content of a pre-pack arrangement is strengthened in various key areas. All marketing of the pre-pack business must comply with six principles of good marketing. The status of valuers giving valuations which underpin the pre-pack transaction must have PI insurance. There is an important sting in the tail of the Report however which should not be overlooked. After 66 pages of review and detailed recommendations the Reports states: "Should these measures fail to have the desired impact .. the Government should consider legislating." The Government has not needed much encouragement to adopt this suggestion and has proposed in the Small Business, Enterprise and Employment Bill published on 26 June to create a reserve power to prohibit pre-pack administration sales to connected parties if certain criteria are not met, for use if non-legislative voluntary solutions do not have the desired effect. It remains to be seen whether this provision represents the slow-burning fuse which may eventually bring an end to the use of pre-packs between connected parties. Time will tell but if the voluntary measures are not shown to be effective this is certainly now a real possibility. ]]>{29CB4E88-AAAA-46B8-99FE-4A0259D8FA67}https://www.shoosmiths.co.uk/news/press-releases/shoosmiths-shortlisted-for-women-in-business-awards-7770.aspxShoosmiths shortlisted for double at Manchester&#39;s annual Women in Business Awards Shoosmiths is pleased to announce two key partners have been shortlisted for the Manchester Downtown in Business Women in Business Awards. Sarah Teal, who has been nominated for Legal Adviser of the Year, is partner in the Shoosmiths corporate restructuring and insolvency team. Laura Harper, nominated for the Business Support award, is also a partner and heads the new IP and creative industries team. Sarah said: 'It is a pleasure to be nominated for Downtown in Business's Legal Advisor of the Year award. I am passionate about providing our clients with a bespoke experience - whether that's ways of working, pricing structures or just providing innovative ideas that make a commercial difference. Applying this ethos makes a real positive difference to client experience.' Laura said: 'I have always viewed my practice as a relevant, accessible legal support service to those businesses and professionals operating in the creative and digital sectors. We've developed a team approach to working with our clients to help them to achieve their goals. I'm delighted to be nominated in the Business Support category as it reflects the commercially relevant nature of the legal services we provide.' Sarah is a skilled national insolvency and restructuring lawyer and has a broad range of experience across the full spectrum of insolvency and restructuring, including property issues, with particular emphasis on supporting insolvency practitioners, banks and asset based lenders. Laura acts for many creative and digital businesses, from multi-national technology companies, major fashion brands and communications agencies through to music businesses and professionals. She is based at the Spinningfields office and also at the city's creative media hub, The Sharp Project. The awards were set up by the influential business organisation, Downtown in Business (DiB), which was established in 2004 to provide leadership to the private sector, by articulating views of its members to public sector agencies that govern the city and create networking opportunities for businesses in the region. They take place on Thursday 10 July at the Lowry Hotel in Manchester. You can visit the Downtown in Business website by clicking here.Mon, 09 Jun 2014 00:00:00 +0100<![CDATA[Laura Harper Sarah Teal ]]><![CDATA[ Shoosmiths is pleased to announce two key partners have been shortlisted for the Manchester Downtown in Business Women in Business Awards. Sarah Teal, who has been nominated for Legal Adviser of the Year, is partner in the Shoosmiths corporate restructuring and insolvency team. Laura Harper, nominated for the Business Support award, is also a partner and heads the new IP and creative industries team. Sarah said: 'It is a pleasure to be nominated for Downtown in Business's Legal Advisor of the Year award. I am passionate about providing our clients with a bespoke experience - whether that's ways of working, pricing structures or just providing innovative ideas that make a commercial difference. Applying this ethos makes a real positive difference to client experience.' Laura said: 'I have always viewed my practice as a relevant, accessible legal support service to those businesses and professionals operating in the creative and digital sectors. We've developed a team approach to working with our clients to help them to achieve their goals. I'm delighted to be nominated in the Business Support category as it reflects the commercially relevant nature of the legal services we provide.' Sarah is a skilled national insolvency and restructuring lawyer and has a broad range of experience across the full spectrum of insolvency and restructuring, including property issues, with particular emphasis on supporting insolvency practitioners, banks and asset based lenders. Laura acts for many creative and digital businesses, from multi-national technology companies, major fashion brands and communications agencies through to music businesses and professionals. She is based at the Spinningfields office and also at the city's creative media hub, The Sharp Project. The awards were set up by the influential business organisation, Downtown in Business (DiB), which was established in 2004 to provide leadership to the private sector, by articulating views of its members to public sector agencies that govern the city and create networking opportunities for businesses in the region. They take place on Thursday 10 July at the Lowry Hotel in Manchester. You can visit the Downtown in Business website by clicking here.]]>{CFAFAD61-B620-4446-A4EB-8036720535D5}https://www.shoosmiths.co.uk/client-resources/legal-updates/the-rules-game-changed-landlords-and-administrators-7032.aspxThe rules of the Game have changed for landlords and administrators On 24 February the Court of Appeal gave judgment in the Game Station case (Jervis -v- Pillar Denton and Others). It affects the way that rent is treated in an administration. Download hi-res image Craig Downhill, Senior Associate The facts - arrears of rent on administration When the Game group of companies went into administration, one company was the tenant of hundreds of leasehold properties under which, in most cases, rent was payable in advance on the usual quarter days. £10 million in rent became due under the leases on 25 March 2012. The group went into administration the next day. Some stores closed immediately. Others continued trading and were included in a sale of the business and assets. £3 million of the March rent remained outstanding in respect of those stores which continued trading. The issue - is rent to be treated as an expense of the administration? The question was how to treat the rent which was payable under the leases when the company went into administration. Was it to be treated as an expense of the administration so that it was paid in priority to other debts of the company? Two previous cases had decided the following: If, after a company had entered administration, a quarter's rent (payable in advance) fell due during the period in which premises had been retained for the purposes of the administration, the whole of that quarter's rent was payable as an administration expense even if occupation was given up later in the same quarter (example: administration begins on 1 March and premises are used for the administration; rent is payable on 25 March; premises are vacated on 20 May before the next rent is due on 24 June - the rent is payable as an administration expense for the whole of the March quarter (25 March to 23 June). If a quarter's rent fell due before entry into administration, however, none of it was payable as an administration expense even if the administrators retained possession for the purposes of the administration (example: rent is payable 25 March; tenant goes into administration on 26 March but the premises are retained for the administration - no rent is payable as an administration expense for the whole of the March quarter (25 March to 23 June). As a result, it was common for companies to enter into administration on the day immediately after a quarter day. This avoided the liability to pay the rent in full for that quarter even if those leasehold premises were retained for the benefit of the administration. Effectively, the company was able to enjoy a "rent free period" of almost 3 months. The decision - rent is to be treated as an expense of the administration The Court of Appeal has overruled these earlier cases. An administrator must now pay rent as an administration expense for the period during which he retains possession of leasehold premises for the benefit of the administration. That rent will be payable at the rate payable under the lease and will be treated as accruing from day to day. He must pay a daily rate for that period. Some effects of the decision There will be on-going administrations which began before the decision in the Games Station appeal where decisions had been made on the basis of the "old law" about what rents were to be treated as an expense of the administration. In those where a quarter's rent had fallen due before the company went into administration the landlords may have been told that none of it was payable as an administration expense even though the administrators had retained possession and used the premises for the purposes of the administration. Under the "new law", those landlords might now try to recover as an expense of the administration rent at the daily rate for the period between the date that the premises began to be used for the purposes of the administration and the date when that use ceased. Under the "new law", the "rent free" period of up to 3 months will no longer be available simply by reason of the company going into administration the day after a quarter day. Consideration should be given as to what will amount to the retention or use of the premises for the purposes of the administration so as to lead to the rent being treated as an administration expense. For example, whilst premises may be closed and non-trading they may, for example, house machinery connected into various utility services. That machinery could be sold for the benefit of creditors, but a buyer may want to see it in operation before deciding whether or not to buy. Such a situation could well lead to rent for the premises being treated as an expense of the administration during the period that the machinery is being advertised for sale down to its removal following its sale even though the premises are closed and non-trading. As a result of landlords being paid in priority to other debts, the amount of any ultimate payments to unsecured creditors will be reduced. Tue, 25 Feb 2014 00:00:00 Z<![CDATA[Paul Knight ]]><![CDATA[ On 24 February the Court of Appeal gave judgment in the Game Station case (Jervis -v- Pillar Denton and Others). It affects the way that rent is treated in an administration. Download hi-res image Craig Downhill, Senior Associate The facts - arrears of rent on administration When the Game group of companies went into administration, one company was the tenant of hundreds of leasehold properties under which, in most cases, rent was payable in advance on the usual quarter days. £10 million in rent became due under the leases on 25 March 2012. The group went into administration the next day. Some stores closed immediately. Others continued trading and were included in a sale of the business and assets. £3 million of the March rent remained outstanding in respect of those stores which continued trading. The issue - is rent to be treated as an expense of the administration? The question was how to treat the rent which was payable under the leases when the company went into administration. Was it to be treated as an expense of the administration so that it was paid in priority to other debts of the company? Two previous cases had decided the following: If, after a company had entered administration, a quarter's rent (payable in advance) fell due during the period in which premises had been retained for the purposes of the administration, the whole of that quarter's rent was payable as an administration expense even if occupation was given up later in the same quarter (example: administration begins on 1 March and premises are used for the administration; rent is payable on 25 March; premises are vacated on 20 May before the next rent is due on 24 June - the rent is payable as an administration expense for the whole of the March quarter (25 March to 23 June). If a quarter's rent fell due before entry into administration, however, none of it was payable as an administration expense even if the administrators retained possession for the purposes of the administration (example: rent is payable 25 March; tenant goes into administration on 26 March but the premises are retained for the administration - no rent is payable as an administration expense for the whole of the March quarter (25 March to 23 June). As a result, it was common for companies to enter into administration on the day immediately after a quarter day. This avoided the liability to pay the rent in full for that quarter even if those leasehold premises were retained for the benefit of the administration. Effectively, the company was able to enjoy a "rent free period" of almost 3 months. The decision - rent is to be treated as an expense of the administration The Court of Appeal has overruled these earlier cases. An administrator must now pay rent as an administration expense for the period during which he retains possession of leasehold premises for the benefit of the administration. That rent will be payable at the rate payable under the lease and will be treated as accruing from day to day. He must pay a daily rate for that period. Some effects of the decision There will be on-going administrations which began before the decision in the Games Station appeal where decisions had been made on the basis of the "old law" about what rents were to be treated as an expense of the administration. In those where a quarter's rent had fallen due before the company went into administration the landlords may have been told that none of it was payable as an administration expense even though the administrators had retained possession and used the premises for the purposes of the administration. Under the "new law", those landlords might now try to recover as an expense of the administration rent at the daily rate for the period between the date that the premises began to be used for the purposes of the administration and the date when that use ceased. Under the "new law", the "rent free" period of up to 3 months will no longer be available simply by reason of the company going into administration the day after a quarter day. Consideration should be given as to what will amount to the retention or use of the premises for the purposes of the administration so as to lead to the rent being treated as an administration expense. For example, whilst premises may be closed and non-trading they may, for example, house machinery connected into various utility services. That machinery could be sold for the benefit of creditors, but a buyer may want to see it in operation before deciding whether or not to buy. Such a situation could well lead to rent for the premises being treated as an expense of the administration during the period that the machinery is being advertised for sale down to its removal following its sale even though the premises are closed and non-trading. As a result of landlords being paid in priority to other debts, the amount of any ultimate payments to unsecured creditors will be reduced. ]]>{2B6EF338-B698-4C66-94AF-028397178E58}https://www.shoosmiths.co.uk/client-resources/legal-updates/bringing-an-administration-to-end-considerations-administrators-5771.aspxBringing an administration to an end: Considerations for administrators A recent opinion by Lord Hodge in the Court of Session has clarified an administrator's powers and duties in cases where they wish to bring an administration to an end. In particular, it clarifies where they have achieved a different objective from that approved by the creditors. It is a Scottish case (case), but will be persuasive authority south of the border given the UK-wide applicability of the Insolvency Act 1986 and the fact that Lord Hodge is shortly to be elevated to the UK Supreme Court. The case concerned an application by joint administrators for directions from the court in circumstances where they considered that a company might be rescued as a going concern. There was a significant dispute in relation to the level of debt owed to one creditor, which may or may not have affected the ability of the company to continue as a going concern once it exited administration. That dispute was likely to be resolved within a matter of months by a binding determination of an expert. The administrators sought to found on a draft report by that expert, but the creditor claimed this report was defective and that they intended to make representations prior to the report being finalised. The creditor's position was that the true debt was some 20 times higher than that set out by the administrators on the basis of the draft report. The issues upon which directions were sought were: (a) The extent to which an administrator has discretion to declare that the objectives of the administration have been achieved and thereby bring the administration to an end in terms of paragraph 80 of Schedule B1 of the Insolvency Act 1986; (b) whether the Administrator must make an application to the court in those circumstances to bring their appointment to an end; and (c) whether an administrator requires to call a further creditors' meeting in circumstances where the objectives being achieved were different from those which were approved at the initial creditors' meeting. On considering the particular circumstances applicable to this case, the court held that: (a) It was a matter for the administrator and not the court to determine whether the objective of the administration has been achieved. Where that objective was the rescue of the company as a going concern, the administrator must assess the likelihood of the company realistically maintaining its status as a going concern into the future. This was primarily an accounting exercise and the test would be whether the business stood a fair chance of success. Current accountancy practice was to consider the directors' business plan and cashflow forecasts for at least 12 months into the future. In a case such as this, where there is a significant dispute as to the quantum of a particular debt which might affect the company's ability to pay its debts upon exiting administration, this represents a material consideration for the administrators in making this assessment. If the administrators chose to act before any binding determination of the claim is made, they must be able to demonstrate that they had (i) sought clarification of and considered the creditor's position; and (ii) taken legal advice on the claim in light of the creditor's stated position and any other relevant information before them prior to acting. (b) The court went on to consider whether the administrators, having carried out this exercise would then require to apply to the court for an order that their appointment shall cease to have effect. It was held that this was not required. The Act gives an administrator the power to decide whether the company has been rescued as a going concern and, if so, to file the relevant paperwork terminating his appointment. (c) Finally, the court considered the question of what steps an administrator must take where they have fulfilled objectives which are different from those approved by creditors. The Act states that where a substantial revision to the administrators' proposals is proposed, a further creditors meeting should be fixed to approve the revisal. In this case the creditors had approved proposals with the aim of making a distribution to secured creditors. The administrators now sought to exit administration on the basis that the company might carry on business as a going concern. It was argued on behalf of the administrators that rescue as a going concern is further up the hierarchy of possible objectives in the Act, and therefore the administrators ought not to be required to fix a further creditors' meeting as - in effect - the outcome was better than that approved by the creditors. They also sought to argue that in this case the one creditor whom they knew would object to the proposal would likely be voted down, and therefore the meeting would serve little purpose. The court rejected both of those arguments holding that a meeting should be fixed, although did point to the administrators' right to apply for directions under paragraph 68, asking the court to approve the varied proposal in circumstances where creditors were acting unreasonably in rejecting it. Whilst the opinion turns largely on its facts, it provides useful guidance to administrators in considering their position in cases where one of the statutory objectives of an administration has been achieved. Mon, 22 Jul 2013 00:00:00 +0100<![CDATA[Andrew Foyle ]]><![CDATA[ A recent opinion by Lord Hodge in the Court of Session has clarified an administrator's powers and duties in cases where they wish to bring an administration to an end. In particular, it clarifies where they have achieved a different objective from that approved by the creditors. It is a Scottish case (case), but will be persuasive authority south of the border given the UK-wide applicability of the Insolvency Act 1986 and the fact that Lord Hodge is shortly to be elevated to the UK Supreme Court. The case concerned an application by joint administrators for directions from the court in circumstances where they considered that a company might be rescued as a going concern. There was a significant dispute in relation to the level of debt owed to one creditor, which may or may not have affected the ability of the company to continue as a going concern once it exited administration. That dispute was likely to be resolved within a matter of months by a binding determination of an expert. The administrators sought to found on a draft report by that expert, but the creditor claimed this report was defective and that they intended to make representations prior to the report being finalised. The creditor's position was that the true debt was some 20 times higher than that set out by the administrators on the basis of the draft report. The issues upon which directions were sought were: (a) The extent to which an administrator has discretion to declare that the objectives of the administration have been achieved and thereby bring the administration to an end in terms of paragraph 80 of Schedule B1 of the Insolvency Act 1986; (b) whether the Administrator must make an application to the court in those circumstances to bring their appointment to an end; and (c) whether an administrator requires to call a further creditors' meeting in circumstances where the objectives being achieved were different from those which were approved at the initial creditors' meeting. On considering the particular circumstances applicable to this case, the court held that: (a) It was a matter for the administrator and not the court to determine whether the objective of the administration has been achieved. Where that objective was the rescue of the company as a going concern, the administrator must assess the likelihood of the company realistically maintaining its status as a going concern into the future. This was primarily an accounting exercise and the test would be whether the business stood a fair chance of success. Current accountancy practice was to consider the directors' business plan and cashflow forecasts for at least 12 months into the future. In a case such as this, where there is a significant dispute as to the quantum of a particular debt which might affect the company's ability to pay its debts upon exiting administration, this represents a material consideration for the administrators in making this assessment. If the administrators chose to act before any binding determination of the claim is made, they must be able to demonstrate that they had (i) sought clarification of and considered the creditor's position; and (ii) taken legal advice on the claim in light of the creditor's stated position and any other relevant information before them prior to acting. (b) The court went on to consider whether the administrators, having carried out this exercise would then require to apply to the court for an order that their appointment shall cease to have effect. It was held that this was not required. The Act gives an administrator the power to decide whether the company has been rescued as a going concern and, if so, to file the relevant paperwork terminating his appointment. (c) Finally, the court considered the question of what steps an administrator must take where they have fulfilled objectives which are different from those approved by creditors. The Act states that where a substantial revision to the administrators' proposals is proposed, a further creditors meeting should be fixed to approve the revisal. In this case the creditors had approved proposals with the aim of making a distribution to secured creditors. The administrators now sought to exit administration on the basis that the company might carry on business as a going concern. It was argued on behalf of the administrators that rescue as a going concern is further up the hierarchy of possible objectives in the Act, and therefore the administrators ought not to be required to fix a further creditors' meeting as - in effect - the outcome was better than that approved by the creditors. They also sought to argue that in this case the one creditor whom they knew would object to the proposal would likely be voted down, and therefore the meeting would serve little purpose. The court rejected both of those arguments holding that a meeting should be fixed, although did point to the administrators' right to apply for directions under paragraph 68, asking the court to approve the varied proposal in circumstances where creditors were acting unreasonably in rejecting it. Whilst the opinion turns largely on its facts, it provides useful guidance to administrators in considering their position in cases where one of the statutory objectives of an administration has been achieved. ]]>{DB0C79B4-CBF0-4945-BA22-AA6323BAC27C}https://www.shoosmiths.co.uk/news/press-releases/shoosmiths-supports-aldermores-participation-in-funding-for-lending-scheme-5569.aspxShoosmiths supports Aldermore&#39;s participation in Funding for Lending Scheme Aldermore, the new British 'challenger' bank, is being provided with legal support by national law firm Shoosmiths, as it continues to participate in the government backed Funding for Lending scheme (FLS). Launched by the Bank of England and HM Treasury last August, the scheme has been designed to incentivise financial institutions to boost lending to UK households and businesses. The Bank of England &amp; HM Treasury announced recently that the FLS scheme is to be extended until January 2015. Data released recently by the Bank of England confirms that during the first quarter of 2013 Aldermore's net lending of £230 million to the UK economy was in the top six of all the lenders in the scheme, at a time when a number of the UK's largest banks are reducing their overall lending. Aldermore CEO Phillip Monks said: "FLS is an important scheme designed to provide both businesses and homeowners with access to competitively priced funding. We're delighted to participate in the scheme and are grateful to for the legal support provided by Shoosmiths, which enables us to become the first challenger bank to participate in FLS." Business Secretary Vince Cable visited Aldermore's Reading office recently to meet with Monks and to share views on the role challenger banks must play in supporting SMEs in order to re-stimulate the UK economy. James Keates, partner and head of Shoosmiths' restructuring and insolvency team, explained: "FLS works by allowing banks and building societies to borrow UK treasury bills from the Bank of England for up to four years. "Aldermore is putting up residential and commercial mortgage loans to the bank of England as security against that lending, and the more it lends, the more it will be able to borrow. "We've helped Aldermore borrow hundreds of millions via the FLS, which means a potentially huge lending injection at competitive prices for many of its customers." Launched in 2009 and described as offering 'a fresh, dynamic approach to banking', Aldermore is one of the best capitalised banks in the UK. Thu, 13 Jun 2013 00:00:00 +0100<![CDATA[James Keates Aaron Harlow ]]><![CDATA[ Aldermore, the new British 'challenger' bank, is being provided with legal support by national law firm Shoosmiths, as it continues to participate in the government backed Funding for Lending scheme (FLS). Launched by the Bank of England and HM Treasury last August, the scheme has been designed to incentivise financial institutions to boost lending to UK households and businesses. The Bank of England &amp; HM Treasury announced recently that the FLS scheme is to be extended until January 2015. Data released recently by the Bank of England confirms that during the first quarter of 2013 Aldermore's net lending of £230 million to the UK economy was in the top six of all the lenders in the scheme, at a time when a number of the UK's largest banks are reducing their overall lending. Aldermore CEO Phillip Monks said: "FLS is an important scheme designed to provide both businesses and homeowners with access to competitively priced funding. We're delighted to participate in the scheme and are grateful to for the legal support provided by Shoosmiths, which enables us to become the first challenger bank to participate in FLS." Business Secretary Vince Cable visited Aldermore's Reading office recently to meet with Monks and to share views on the role challenger banks must play in supporting SMEs in order to re-stimulate the UK economy. James Keates, partner and head of Shoosmiths' restructuring and insolvency team, explained: "FLS works by allowing banks and building societies to borrow UK treasury bills from the Bank of England for up to four years. "Aldermore is putting up residential and commercial mortgage loans to the bank of England as security against that lending, and the more it lends, the more it will be able to borrow. "We've helped Aldermore borrow hundreds of millions via the FLS, which means a potentially huge lending injection at competitive prices for many of its customers." Launched in 2009 and described as offering 'a fresh, dynamic approach to banking', Aldermore is one of the best capitalised banks in the UK. ]]>{0FFA7F33-DEE3-4AD1-AC2A-D3FC711B003D}https://www.shoosmiths.co.uk/client-resources/legal-updates/it-contracts-dealing-with-the-risk-of-supplier-insolvency-4881.aspxIT contracts: Dealing with the risk of supplier insolvency The collapse of systems integrator and reseller 2e2 in January has highlighted the danger for clients of companies such as 2e2, and focuses attention on how to deal with this type of situation. At a recent Shoosmiths event, data, IT and banking lawyers shared practical experience of the risks and potential remedies associated with insolvency of IT suppliers. Main risks discussed included: heavy reliance on one supplier and lack of contingency arrangements if that supplier fails - 1,800 IT sector organisations became insolvent from 2009-11 rights of administrators to refuse to perform contractual obligations of an insolvent supplier lack of appreciation in the client's organisation of the critical applications provided by suppliers, which can lead to paralysis following an insolvency event concern that users do not understand the vulnerability of cloud-based offerings Attendees at the event, one of a series run by Shoosmiths' Commercial Team for in-house lawyers and IT professionals, then discussed how they could strengthen their resilience against supplier insolvency. A number of interesting points emerged, including the limited practical use of escrow arrangements. Some practical solutions and mitigating measures included: regular visits to suppliers in the context of pre-contractual due diligence and also as part of ongoing contract management strategy, to check suppliers' ongoing viability and resilience to risk take control of critical bespoke software applications by developing them in-house, if possible be very sure you understand the rights you have to use critical software - a short-term licence may not give you the security you need spread the risk across several suppliers, rather than relying on one critical provider if you choose to use the deposit of source code in escrow as a means of protection, recognise the importance of keeping the materials up-to-date, and think through the practicalities of using the code to rebuild your systems consider carefully how you could retrieve your data if a supplier fails 2e2's administrators FTI Consulting have confirmed they are unable to sell the company as a going concern, leading to the immediate loss of 627 UK jobs. These are in addition to 345 redundancies made by 2e2 as it went into administration. Apart from the very real human cost of business insolvency, there will be expensive implications for those 2e2 clients unable to put in place adequate contingency measures - while those that considered the possibility of a worst-case scenario from the outset will have protected their interests in various ways. They are now very relieved that they did. Wed, 20 Feb 2013 00:00:00 Z<![CDATA[Andrew Pickin ]]><![CDATA[ The collapse of systems integrator and reseller 2e2 in January has highlighted the danger for clients of companies such as 2e2, and focuses attention on how to deal with this type of situation. At a recent Shoosmiths event, data, IT and banking lawyers shared practical experience of the risks and potential remedies associated with insolvency of IT suppliers. Main risks discussed included: heavy reliance on one supplier and lack of contingency arrangements if that supplier fails - 1,800 IT sector organisations became insolvent from 2009-11 rights of administrators to refuse to perform contractual obligations of an insolvent supplier lack of appreciation in the client's organisation of the critical applications provided by suppliers, which can lead to paralysis following an insolvency event concern that users do not understand the vulnerability of cloud-based offerings Attendees at the event, one of a series run by Shoosmiths' Commercial Team for in-house lawyers and IT professionals, then discussed how they could strengthen their resilience against supplier insolvency. A number of interesting points emerged, including the limited practical use of escrow arrangements. Some practical solutions and mitigating measures included: regular visits to suppliers in the context of pre-contractual due diligence and also as part of ongoing contract management strategy, to check suppliers' ongoing viability and resilience to risk take control of critical bespoke software applications by developing them in-house, if possible be very sure you understand the rights you have to use critical software - a short-term licence may not give you the security you need spread the risk across several suppliers, rather than relying on one critical provider if you choose to use the deposit of source code in escrow as a means of protection, recognise the importance of keeping the materials up-to-date, and think through the practicalities of using the code to rebuild your systems consider carefully how you could retrieve your data if a supplier fails 2e2's administrators FTI Consulting have confirmed they are unable to sell the company as a going concern, leading to the immediate loss of 627 UK jobs. These are in addition to 345 redundancies made by 2e2 as it went into administration. Apart from the very real human cost of business insolvency, there will be expensive implications for those 2e2 clients unable to put in place adequate contingency measures - while those that considered the possibility of a worst-case scenario from the outset will have protected their interests in various ways. They are now very relieved that they did. ]]>{ED8D648F-4223-4F14-88ED-9815022C1AC6}https://www.shoosmiths.co.uk/news/press-releases/shoosmiths-helps-save-cloggs-jobs-4869.aspxShoosmiths helps save Cloggs jobs A Shoosmiths restructuring and insolvency specialist has helped a leading online footwear retailer save jobs.Fri, 15 Feb 2013 00:00:00 Z<![CDATA[Charles Williams ]]><![CDATA[ A Shoosmiths restructuring and insolvency specialist has helped a leading online footwear retailer save jobs.]]>{0F516E53-DD5F-4A4B-A2A9-FADE7283E9E9}https://www.shoosmiths.co.uk/client-resources/legal-updates/possible-refunds-of-vat-and-sdlt-4125.aspxPossible refunds of VAT and SDLT - Transfer of a business as a going concern The First-tier Tribunal (tribunal) has held that VAT transfer as a going concern (TOGC) treatment was available where the appellant had to sell its interest in property by way of sub-lease, rather than assigning its interest in the head lease. This is due to alienation restrictions in that head lease. The tribunal looked to the substance of the transaction, rather than its legal form, and found that the transferee could carry on the same letting business as the transferor without restriction. The asset in the case of Robinson Family Ltd v HMRC [2012] UK FTT 360 was the right to use the property in the same way, and to the same extent, as the transferor, notwithstanding that, technically, a new asset had been created rather than the existing one being transferred. Analysis The decision overturns long-standing published Revenue practice. The Revenue has always taken the view that where a new asset is created (in this case, the grant of a lease) there cannot be a "transfer". The key question posed by the Tribunal was whether the transferee is effectively in the same position as the transferor in terms of the business that it carries out, regardless of the legal form of the interest held. What appears to be determinative is whether the transferee can do everything that the transferor does. The Tribunal considered that very small differences (such as the appellant's three-day reversionary interest in this case) would not be fatal, but it would be advisable for the transferee to ensure that its rights mimic those of the transferor as closely as possible. This decision should open up the possibility of TOGC treatment to those parties that are unable to replicate the technical, legal form of the transferor's interest in transferred property due to restrictions placed on alienation by the transferor by a person with a superior interest. Future Transactions Clearly, it will be advisable where possible, to continue following the Revenue's practice as regarding TOGCs. However, where it is not possible because, for example, of restrictions effecting the land interest consideration should be given to mimicing the existing land interest as closely as possible. Tax Refund If you have been involved in similar circumstances within the last four years it may be worth putting in a VAT refund claim on the basis that no VAT due. If this is accepted it will also be worthwhile to put in a refund claim for overpaid SDLT. Wed, 17 Oct 2012 00:00:00 +0100<![CDATA[Kate Featherstone ]]><![CDATA[ The First-tier Tribunal (tribunal) has held that VAT transfer as a going concern (TOGC) treatment was available where the appellant had to sell its interest in property by way of sub-lease, rather than assigning its interest in the head lease. This is due to alienation restrictions in that head lease. The tribunal looked to the substance of the transaction, rather than its legal form, and found that the transferee could carry on the same letting business as the transferor without restriction. The asset in the case of Robinson Family Ltd v HMRC [2012] UK FTT 360 was the right to use the property in the same way, and to the same extent, as the transferor, notwithstanding that, technically, a new asset had been created rather than the existing one being transferred. Analysis The decision overturns long-standing published Revenue practice. The Revenue has always taken the view that where a new asset is created (in this case, the grant of a lease) there cannot be a "transfer". The key question posed by the Tribunal was whether the transferee is effectively in the same position as the transferor in terms of the business that it carries out, regardless of the legal form of the interest held. What appears to be determinative is whether the transferee can do everything that the transferor does. The Tribunal considered that very small differences (such as the appellant's three-day reversionary interest in this case) would not be fatal, but it would be advisable for the transferee to ensure that its rights mimic those of the transferor as closely as possible. This decision should open up the possibility of TOGC treatment to those parties that are unable to replicate the technical, legal form of the transferor's interest in transferred property due to restrictions placed on alienation by the transferor by a person with a superior interest. Future Transactions Clearly, it will be advisable where possible, to continue following the Revenue's practice as regarding TOGCs. However, where it is not possible because, for example, of restrictions effecting the land interest consideration should be given to mimicing the existing land interest as closely as possible. Tax Refund If you have been involved in similar circumstances within the last four years it may be worth putting in a VAT refund claim on the basis that no VAT due. If this is accepted it will also be worthwhile to put in a refund claim for overpaid SDLT. ]]>{B2B792BE-BA48-4D68-BB2F-10560560BA09}https://www.shoosmiths.co.uk/client-resources/legal-updates/vtb-v-nutritek-preserving-the-corporate-veil-4117.aspxVTB v Nutritek: Preserving the corporate veil? The corporate veil principle - that a company has a separate legal personality from its members - is a long established and fundamental element of English company law. It operates to keep a company's liability separate from those who control it. In our update, Liability of parent companies and the actions of their subsidiaries, we reported that a parent company can be held liable for the actions of its subsidiary where there is an assumption of responsibility. Those circumstances and others involving the principles of agency, trust or tort might be seen as providing for circumvention of the veil. However, there have been only exceptional examples (often involving fraud or deceit) where the courts have deemed it appropriate to pierce the corporate veil, holding those who control a company responsible for its actions. In VTB Capital Plc v Nutritek International Corp and Others, the Court of Appeal clarified the principles on which the corporate veil can be pierced. The Supreme Court has granted leave to appeal the decision. The Nutritek case concerned a $225m loan agreement made between Russagroprom LLC and VTB Capital Plc in order to finance Russagroprom's acquisition of a number of Russian assets from Nutritek International Corp. Russagroprom subsequently defaulted on its loan repayments and VTB recovered less than $40m. VTB alleged that it was induced to enter into the loan by misrepresentations made by Nutritek; firstly as to the value of the assets, secondly as to the owner of Russagroprom. Its case was that the representations formed part of a conspiracy between Nutritek and various persons, including the ultimate controller of Russagroprom and Nutritek, namely, Russian entrepreneur Konstantin Malofeev and his associated companies. VTB's initial claim was in the tort of deceit. However, it later attempted to amend its claim to include breach of the loan agreement. The benefit to VTB of this second claim would be that the English courts would have jurisdiction, as the loan agreement was governed by English law. VTB applied for leave to amend its claim so as to assert that Mr Malofeev and his associated companies were all liable to it under the loan agreement by piercing the corporate veil of Russagroprom. It argued that all of the characteristics for piercing the corporate veil of Russagroprom were present - there was an involved and fraudulent misuse of the company structure of Russagroprom, which was used as a device to conceal the wrongdoing of Mr Malofeev and his associated companies. The defendants argued the English Courts had no jurisdiction, relying on the principle of the corporate veil, in that Russagroprom (as borrower) and Nutritek (as seller) were the liable entities, not their controllers. The Court of Appeal rejected VTB's argument. Essentially, it deemed VTB to have a good claim in the tort of deceit and it was not prepared to pierce the corporate veil of Russagroprom in order to allow VTB to gain a jurisdictional advantage when Mr Malofeev and his associated companies never intended to be parties to the loan agreement (notwithstanding the alleged fraudulent deal structure). As well as providing clarity on the circumstances when the corporate veil might be pierced, the Court of Appeal's judgment in this case was also a clear rejection of a fundamental inroad into the basic principle of law that a contract is the result of a consensual arrangement only between those who intend to be a party to it. The appeal to the Supreme Court is scheduled for hearing in November. Case: VTB Capital PLC v Nutritek International Corp and others [2012] EWCA Civ 808 Wed, 17 Oct 2012 00:00:00 +0100<![CDATA[Alistair Hammerton ]]><![CDATA[ The corporate veil principle - that a company has a separate legal personality from its members - is a long established and fundamental element of English company law. It operates to keep a company's liability separate from those who control it. In our update, Liability of parent companies and the actions of their subsidiaries, we reported that a parent company can be held liable for the actions of its subsidiary where there is an assumption of responsibility. Those circumstances and others involving the principles of agency, trust or tort might be seen as providing for circumvention of the veil. However, there have been only exceptional examples (often involving fraud or deceit) where the courts have deemed it appropriate to pierce the corporate veil, holding those who control a company responsible for its actions. In VTB Capital Plc v Nutritek International Corp and Others, the Court of Appeal clarified the principles on which the corporate veil can be pierced. The Supreme Court has granted leave to appeal the decision. The Nutritek case concerned a $225m loan agreement made between Russagroprom LLC and VTB Capital Plc in order to finance Russagroprom's acquisition of a number of Russian assets from Nutritek International Corp. Russagroprom subsequently defaulted on its loan repayments and VTB recovered less than $40m. VTB alleged that it was induced to enter into the loan by misrepresentations made by Nutritek; firstly as to the value of the assets, secondly as to the owner of Russagroprom. Its case was that the representations formed part of a conspiracy between Nutritek and various persons, including the ultimate controller of Russagroprom and Nutritek, namely, Russian entrepreneur Konstantin Malofeev and his associated companies. VTB's initial claim was in the tort of deceit. However, it later attempted to amend its claim to include breach of the loan agreement. The benefit to VTB of this second claim would be that the English courts would have jurisdiction, as the loan agreement was governed by English law. VTB applied for leave to amend its claim so as to assert that Mr Malofeev and his associated companies were all liable to it under the loan agreement by piercing the corporate veil of Russagroprom. It argued that all of the characteristics for piercing the corporate veil of Russagroprom were present - there was an involved and fraudulent misuse of the company structure of Russagroprom, which was used as a device to conceal the wrongdoing of Mr Malofeev and his associated companies. The defendants argued the English Courts had no jurisdiction, relying on the principle of the corporate veil, in that Russagroprom (as borrower) and Nutritek (as seller) were the liable entities, not their controllers. The Court of Appeal rejected VTB's argument. Essentially, it deemed VTB to have a good claim in the tort of deceit and it was not prepared to pierce the corporate veil of Russagroprom in order to allow VTB to gain a jurisdictional advantage when Mr Malofeev and his associated companies never intended to be parties to the loan agreement (notwithstanding the alleged fraudulent deal structure). As well as providing clarity on the circumstances when the corporate veil might be pierced, the Court of Appeal's judgment in this case was also a clear rejection of a fundamental inroad into the basic principle of law that a contract is the result of a consensual arrangement only between those who intend to be a party to it. The appeal to the Supreme Court is scheduled for hearing in November. Case: VTB Capital PLC v Nutritek International Corp and others [2012] EWCA Civ 808 ]]>{C82ADDF8-12A1-4E47-8E54-06C8B6D65882}https://www.shoosmiths.co.uk/client-resources/legal-updates/security-costs-protection-defendants-insolvent-claimants-3988.aspxSecurity for costs: Protection for defendants from insolvent claimants When a business is on the receiving end of a claim, it is faced with the prospect of having to incur significant costs to defend the action. A defendant in that situation will usually be protected by the general rule that 'the loser pays the winner's costs'. This means that if the defendant successfully defends the claim, the defendant can expect to recover a percentage of its costs from the claimant as ordered by the court if not agreed. But what if happens if the claimant is unable to pay the defendant's costs? In those circumstances, the defendant would be left in the unjust position of having to bear its own costs, even if successful. For this reason, a defendant can apply for an order that the claimant provides security for costs. This means that the claimant must pay money into court or provide a bond or guarantee as security for the defendant's costs, as a condition of being permitted to continue the action. When can a defendant get security for costs? A court may order a claimant to give security for costs if one of several specified conditions apply, including: the claimant is resident outside the European Economic Area and Switzerland the claimant is a limited company or other body (i.e. not an individual) and there is reason to believe that it will be unable to pay the defendant's costs if ordered to do so the claimant has taken steps in relation to his assets that would make it difficult to enforce an order for costs against him If one of the specified conditions is met, the court may make an order for security for costs, if it considers that in the circumstances it is just to do so. When is there reason to believe a company will be unable to pay the defendant's costs? Reason to believe that a claimant, which is a company, will be unable to pay a defendant's costs if ordered to do so (i.e. the claimant is insolvent) is one of the most common grounds for seeking security for costs. But what does it mean? In the recent case of Eagle Ltd v Falcon Ltd [2012] EWHC 2261 (TCC), the Technology and Construction Court considered the basis on which it should determine whether the claimant was insolvent. In doing so, it made comparison to the test under the Insolvency Act. The defendant, F, sought substantial security for costs from the claimant, E. There was no dispute that E was insolvent on the balance-sheet basis, i.e. its total liabilities exceeded its total assets. However, E denied that it was insolvent on the cash-flow basis, i.e. being unable to pay its debts as they fell due, as defined at section 123(1) of the Insolvency Act 1986. E suggested that it was trading profitably and could, if necessary to satisfy a costs order, call on money owed by other group companies. Mr Justice Coulson decided that insolvency on the balance sheet basis alone was enough to demonstrate a reason to believe that E would not be able to pay F's costs. In doing so, he found that the test of a company's insolvency for the purpose of an application for security for costs was less than the test under the Insolvency Act. What does this mean? The decision in Eagle v Falcon clarifies what a defendant needs to show when seeking security for costs on the grounds of the claimant being an insolvent company. The case is helpful for defendants in that they will only need to demonstrate that the claimant is balance-sheet insolvent, and not that the claimant cannot pay its debts. However, it must be remembered that this is only the first part of the test. The court must also consider that it is just in all the circumstances to order the claimant to give security for costs. What should I do? If you are faced with defending a claim and you have doubts about the solvency of the claimant, you should discuss this with your solicitor. A well-timed application for security for costs may protect you if the claimant is ordered to pay your costs. It may also give you a tactical advantage, as the claimant will have to decide whether to continue with the action if they have to pay a significant sum into court. On the other side, if you are a company intending to bring a claim and know or believe that you have more liabilities than assets, even if you can pay your debts, this is something you should consider with your solicitor before commencing a claim. Whatever side you are on, if you are in any doubt about what to do, seek legal advice. Wed, 19 Sep 2012 00:00:00 +0100<![CDATA[Ben Zielinski ]]><![CDATA[ When a business is on the receiving end of a claim, it is faced with the prospect of having to incur significant costs to defend the action. A defendant in that situation will usually be protected by the general rule that 'the loser pays the winner's costs'. This means that if the defendant successfully defends the claim, the defendant can expect to recover a percentage of its costs from the claimant as ordered by the court if not agreed. But what if happens if the claimant is unable to pay the defendant's costs? In those circumstances, the defendant would be left in the unjust position of having to bear its own costs, even if successful. For this reason, a defendant can apply for an order that the claimant provides security for costs. This means that the claimant must pay money into court or provide a bond or guarantee as security for the defendant's costs, as a condition of being permitted to continue the action. When can a defendant get security for costs? A court may order a claimant to give security for costs if one of several specified conditions apply, including: the claimant is resident outside the European Economic Area and Switzerland the claimant is a limited company or other body (i.e. not an individual) and there is reason to believe that it will be unable to pay the defendant's costs if ordered to do so the claimant has taken steps in relation to his assets that would make it difficult to enforce an order for costs against him If one of the specified conditions is met, the court may make an order for security for costs, if it considers that in the circumstances it is just to do so. When is there reason to believe a company will be unable to pay the defendant's costs? Reason to believe that a claimant, which is a company, will be unable to pay a defendant's costs if ordered to do so (i.e. the claimant is insolvent) is one of the most common grounds for seeking security for costs. But what does it mean? In the recent case of Eagle Ltd v Falcon Ltd [2012] EWHC 2261 (TCC), the Technology and Construction Court considered the basis on which it should determine whether the claimant was insolvent. In doing so, it made comparison to the test under the Insolvency Act. The defendant, F, sought substantial security for costs from the claimant, E. There was no dispute that E was insolvent on the balance-sheet basis, i.e. its total liabilities exceeded its total assets. However, E denied that it was insolvent on the cash-flow basis, i.e. being unable to pay its debts as they fell due, as defined at section 123(1) of the Insolvency Act 1986. E suggested that it was trading profitably and could, if necessary to satisfy a costs order, call on money owed by other group companies. Mr Justice Coulson decided that insolvency on the balance sheet basis alone was enough to demonstrate a reason to believe that E would not be able to pay F's costs. In doing so, he found that the test of a company's insolvency for the purpose of an application for security for costs was less than the test under the Insolvency Act. What does this mean? The decision in Eagle v Falcon clarifies what a defendant needs to show when seeking security for costs on the grounds of the claimant being an insolvent company. The case is helpful for defendants in that they will only need to demonstrate that the claimant is balance-sheet insolvent, and not that the claimant cannot pay its debts. However, it must be remembered that this is only the first part of the test. The court must also consider that it is just in all the circumstances to order the claimant to give security for costs. What should I do? If you are faced with defending a claim and you have doubts about the solvency of the claimant, you should discuss this with your solicitor. A well-timed application for security for costs may protect you if the claimant is ordered to pay your costs. It may also give you a tactical advantage, as the claimant will have to decide whether to continue with the action if they have to pay a significant sum into court. On the other side, if you are a company intending to bring a claim and know or believe that you have more liabilities than assets, even if you can pay your debts, this is something you should consider with your solicitor before commencing a claim. Whatever side you are on, if you are in any doubt about what to do, seek legal advice. ]]>{76961995-D757-41DC-A956-B257ECCCA2EB}https://www.shoosmiths.co.uk/client-resources/legal-updates/increased-fines-for-directors-and-company-officers-3016.aspxIncreased fines for directors and company officers Companies and their officers may be forced to rethink their approach to what may previously have been considered 'minor' breaches of business legislation. The Legal Aid, Sentencing and Punishment of Offenders Act 2012 was given royal assent on 1 May 2012. It includes provisions which will see an increase in the level of fines payable for criminal offences tried in magistrates' courts. Once the relevant provisions do come into force the changes will apply to a raft of legislation applicable to businesses, including the Financial Services and Markets Act 2000, the Data Protection Act 1998, the Competition Act 1998 and the Companies Act 2006. Legislation such as this includes numerous provisions under which criminal sanctions are applicable to both companies and their officers. For offences currently carrying a fine capped at £5,000 (often expressed to be the 'statutory maximum') or above, the cap will be removed and, unless the Secretary of State sets a new cap for specific legislation, no upper limit will apply. This will enable magistrates to impose what the government deems to be more appropriate fines for 'wealthy or corporate offenders or organisations'. For offences where fines are currently capped at below £5,000, the caps can be increased by the Secretary of State, although the levels are yet to be determined. Statistics published by Companies House in relation to 2010/2011 reveal that there were 3,440 prosecutions for failure to file accounts and 1,703 prosecutions for failure to file annual returns. The figures indicate that Companies House takes breaches of provisions of the Companies Act 2006 seriously. As the level of fines that directors and officers of a company may face personally is set to increase to an unknown level, companies need to rethink their approach to compliance. Statutory breaches can no longer be considered 'minor' because they attract a relatively low fine. Heavier fines on repeat offenders and large corporate organisations that should do more to adhere with the legislation are likely to follow. Companies concerned that they may not have sufficient processes in place to ensure compliance with the provisions of the Companies Act 2006 and other relevant legislation, should consider using professional company secretarial services to ensure all appropriate filings are made and records maintained. For information on services provided by the Shoosmiths company secretarial team, please contact Sian Sadler on 03700 868440. Wed, 05 Sep 2012 00:00:00 +0100<![CDATA[Sian Sadler ]]><![CDATA[ Companies and their officers may be forced to rethink their approach to what may previously have been considered 'minor' breaches of business legislation. The Legal Aid, Sentencing and Punishment of Offenders Act 2012 was given royal assent on 1 May 2012. It includes provisions which will see an increase in the level of fines payable for criminal offences tried in magistrates' courts. Once the relevant provisions do come into force the changes will apply to a raft of legislation applicable to businesses, including the Financial Services and Markets Act 2000, the Data Protection Act 1998, the Competition Act 1998 and the Companies Act 2006. Legislation such as this includes numerous provisions under which criminal sanctions are applicable to both companies and their officers. For offences currently carrying a fine capped at £5,000 (often expressed to be the 'statutory maximum') or above, the cap will be removed and, unless the Secretary of State sets a new cap for specific legislation, no upper limit will apply. This will enable magistrates to impose what the government deems to be more appropriate fines for 'wealthy or corporate offenders or organisations'. For offences where fines are currently capped at below £5,000, the caps can be increased by the Secretary of State, although the levels are yet to be determined. Statistics published by Companies House in relation to 2010/2011 reveal that there were 3,440 prosecutions for failure to file accounts and 1,703 prosecutions for failure to file annual returns. The figures indicate that Companies House takes breaches of provisions of the Companies Act 2006 seriously. As the level of fines that directors and officers of a company may face personally is set to increase to an unknown level, companies need to rethink their approach to compliance. Statutory breaches can no longer be considered 'minor' because they attract a relatively low fine. Heavier fines on repeat offenders and large corporate organisations that should do more to adhere with the legislation are likely to follow. Companies concerned that they may not have sufficient processes in place to ensure compliance with the provisions of the Companies Act 2006 and other relevant legislation, should consider using professional company secretarial services to ensure all appropriate filings are made and records maintained. For information on services provided by the Shoosmiths company secretarial team, please contact Sian Sadler on 03700 868440. ]]>{29C04D13-F2CB-4159-AABD-38AED495CFBB}https://www.shoosmiths.co.uk/client-resources/legal-updates/tupe-service-provision-change-and-property-transfers-2891.aspxTUPE: Service provision change and property transfers On the sale of investment property it is essential to consider whether the Transfer of Undertaking (Protection of Employment) Regulations 2006 (TUPE) will apply to transfer employment contracts or outsourcing contracts from the seller to the buyer. In basic terms, there are two ways in which contracts may be transferred: either directly, in the case of employee contracts where the employer transfers its interest; or indirectly, where there is an outsourcing arrangement and a new contractor is appointed. This second transfer is known as 'service provision change'. Failure to provide for the operation of the regulations could leave purchasers liable to claims for unfair dismissal and breach of the TUPE regulations. A recent case - Hunter v McCarrick - has raised an interesting question about how the service provision change element of TUPE will apply where there is not just a change of contractor, but also a change of property owner. The facts of the case are not straightforward, but it makes the point that for TUPE to apply it is not enough that work transfers from one contractor to another; there is also a requirement that the work is carried out for the same client - or, in property terms - the same owner. In Hunter, Mr McCarrick, an employee at Waterbridge Group Ltd, had his employment contract transferred to WCP Management Limited, a property maintenance company. The application of TUPE to transfer his - and other employees' contracts - from Waterbridge to WCP was undisputed. Subsequently, HMRC served a winding up petition in respect of Waterbridge, and BDO Stoy Hayward (BDO) was appointed LPA receivers by Aviva, a lender. BDO appointed King Sturge to manage the properties owned by Waterbridge, in place of WCP. Potentially, this left WCP employees without a job unless their employment contracts had transferred by means of TUPE. This was what they claimed had happened. Their case reached the Employment Appeal Tribunal, which had to interpret the TUPE regulations concerning service provision change. The contractor who provided the property management services had changed from WCP to King Sturge, but the 'client' - the person employing that contractor - had also changed, as it was BDO that appointed King Sturge, and not Waterbridge. The EAT considered that regulation 3(1)(b), which defines 'client', should be read as referring to only one client, and that this client's identity must remain the same in order for TUPE to apply. As the 'client's' identity had changed from Waterbridge to BDO/Aviva, TUPE did not apply. The employees of WCP were out of a job. The Hunter case was decided in an insolvency context, but if the decision is applied to the transfer of managed property, it raises the question about whether TUPE will apply in circumstances where a new owner moves outsourced management services to a new contractor. Possibly not! The case is being appealed and so is important to be cautious about the reliance placed on it, but it clearly demonstrates an increased openness by the courts to accept that TUPE will not cover all service provision changes. Tue, 21 Aug 2012 00:00:00 +0100<![CDATA[Paula Rome ]]><![CDATA[ On the sale of investment property it is essential to consider whether the Transfer of Undertaking (Protection of Employment) Regulations 2006 (TUPE) will apply to transfer employment contracts or outsourcing contracts from the seller to the buyer. In basic terms, there are two ways in which contracts may be transferred: either directly, in the case of employee contracts where the employer transfers its interest; or indirectly, where there is an outsourcing arrangement and a new contractor is appointed. This second transfer is known as 'service provision change'. Failure to provide for the operation of the regulations could leave purchasers liable to claims for unfair dismissal and breach of the TUPE regulations. A recent case - Hunter v McCarrick - has raised an interesting question about how the service provision change element of TUPE will apply where there is not just a change of contractor, but also a change of property owner. The facts of the case are not straightforward, but it makes the point that for TUPE to apply it is not enough that work transfers from one contractor to another; there is also a requirement that the work is carried out for the same client - or, in property terms - the same owner. In Hunter, Mr McCarrick, an employee at Waterbridge Group Ltd, had his employment contract transferred to WCP Management Limited, a property maintenance company. The application of TUPE to transfer his - and other employees' contracts - from Waterbridge to WCP was undisputed. Subsequently, HMRC served a winding up petition in respect of Waterbridge, and BDO Stoy Hayward (BDO) was appointed LPA receivers by Aviva, a lender. BDO appointed King Sturge to manage the properties owned by Waterbridge, in place of WCP. Potentially, this left WCP employees without a job unless their employment contracts had transferred by means of TUPE. This was what they claimed had happened. Their case reached the Employment Appeal Tribunal, which had to interpret the TUPE regulations concerning service provision change. The contractor who provided the property management services had changed from WCP to King Sturge, but the 'client' - the person employing that contractor - had also changed, as it was BDO that appointed King Sturge, and not Waterbridge. The EAT considered that regulation 3(1)(b), which defines 'client', should be read as referring to only one client, and that this client's identity must remain the same in order for TUPE to apply. As the 'client's' identity had changed from Waterbridge to BDO/Aviva, TUPE did not apply. The employees of WCP were out of a job. The Hunter case was decided in an insolvency context, but if the decision is applied to the transfer of managed property, it raises the question about whether TUPE will apply in circumstances where a new owner moves outsourced management services to a new contractor. Possibly not! The case is being appealed and so is important to be cautious about the reliance placed on it, but it clearly demonstrates an increased openness by the courts to accept that TUPE will not cover all service provision changes. ]]>{1DD26ACA-864C-4A3D-900C-779088A6FF9B}https://www.shoosmiths.co.uk/client-resources/legal-updates/employee-ownership-positive-new-model-struggling-economy-2879.aspxEmployee Ownership: A positive new business model for a struggling economy? On 4 July 2012, BIS published the final report on the Nuttall Review of Employee Ownership (the Nuttall Report). The report was commissioned by the government to explore how to promote employee ownership in the private sector and spread the benefits into the wider economy. Benefits Supported by a study by the Cass Business School on The Employee Ownership Advantage, the Nuttall Report highlights compelling benefits of directly engaging employees in their employing organisations, including: stronger long-term focus increased business performance more resilience in recessions more positive media image The Nuttall Report also evidences an Employee Ownership Index (listed companies which are at least 10% owned by employees) outperforming the FTSE All Share Index by an average of 10% annually since 1992. Potential business models The idea of incentivising employees via option schemes is not a new one, and the 'John Lewis' partnership model provides a well-established route for employee engagement. However, other options include: direct share ownership indirect share ownership (utilising employee benefit trusts (EBT) to hold shares on behalf of employees) a combination of direct and indirect share ownership The business model could be geared around a typical private limited company share structure, incorporating elements already used in existing businesses such as shareholder consultation on specified matters (potentially via an employees' committee or council), a precise share valuation methodology and mandatory transfer provisions. Recommendations The Nuttall Report examines potential obstacles to a new model, including possible (or perceived) legal and tax complexities, and identifies a number of recommendations to promote the concept and remove some of the obstacles, which include: raising awareness of employee ownership, appointing a minister responsible for promoting the concept within government and disseminating information at key points in a business lifecycle "Right to Request" employee ownership - encouraging employer and employee groups (including trade unions) to develop a code of practice for requesting and agreeing employee ownership in a company increasing resources available to support employee ownership ensuring employee ownership and employee buy outs are well known business concepts reducing the complexity of employee ownership, using "off the shelf" templates, exempting EBTs from the 125 year perpetuity period and improving the operation of internal share markets including holding private company shares in treasury and facilitating share buy backs A copy of the Nuttall Report is available from the BIS website (click here) Government Response Following the report deputy Prime Minister, Nick Clegg, announced: an independent expert Institute for Employee Ownership will be established to provide information and advice to business leaders, employees, advisers and others a call for evidence on how a Right to Request employee ownership could work. This was published on the BIS website and views are sought by 7 September 2012 new off-the-shelf DIY packs to be introduced to help companies adopt the new business models quickly and easily Further updates are due this autumn. Comment In a difficult economic climate, when employees may feel they are an expendable commodity rather than an integral part of the business function, proposals to further incentivise employees to encourage a collaborative ethos and improve business strength may well prove to be an increasingly popular business model. Mon, 20 Aug 2012 00:00:00 +0100<![CDATA[Nina Smith ]]><![CDATA[ On 4 July 2012, BIS published the final report on the Nuttall Review of Employee Ownership (the Nuttall Report). The report was commissioned by the government to explore how to promote employee ownership in the private sector and spread the benefits into the wider economy. Benefits Supported by a study by the Cass Business School on The Employee Ownership Advantage, the Nuttall Report highlights compelling benefits of directly engaging employees in their employing organisations, including: stronger long-term focus increased business performance more resilience in recessions more positive media image The Nuttall Report also evidences an Employee Ownership Index (listed companies which are at least 10% owned by employees) outperforming the FTSE All Share Index by an average of 10% annually since 1992. Potential business models The idea of incentivising employees via option schemes is not a new one, and the 'John Lewis' partnership model provides a well-established route for employee engagement. However, other options include: direct share ownership indirect share ownership (utilising employee benefit trusts (EBT) to hold shares on behalf of employees) a combination of direct and indirect share ownership The business model could be geared around a typical private limited company share structure, incorporating elements already used in existing businesses such as shareholder consultation on specified matters (potentially via an employees' committee or council), a precise share valuation methodology and mandatory transfer provisions. Recommendations The Nuttall Report examines potential obstacles to a new model, including possible (or perceived) legal and tax complexities, and identifies a number of recommendations to promote the concept and remove some of the obstacles, which include: raising awareness of employee ownership, appointing a minister responsible for promoting the concept within government and disseminating information at key points in a business lifecycle "Right to Request" employee ownership - encouraging employer and employee groups (including trade unions) to develop a code of practice for requesting and agreeing employee ownership in a company increasing resources available to support employee ownership ensuring employee ownership and employee buy outs are well known business concepts reducing the complexity of employee ownership, using "off the shelf" templates, exempting EBTs from the 125 year perpetuity period and improving the operation of internal share markets including holding private company shares in treasury and facilitating share buy backs A copy of the Nuttall Report is available from the BIS website (click here) Government Response Following the report deputy Prime Minister, Nick Clegg, announced: an independent expert Institute for Employee Ownership will be established to provide information and advice to business leaders, employees, advisers and others a call for evidence on how a Right to Request employee ownership could work. This was published on the BIS website and views are sought by 7 September 2012 new off-the-shelf DIY packs to be introduced to help companies adopt the new business models quickly and easily Further updates are due this autumn. Comment In a difficult economic climate, when employees may feel they are an expendable commodity rather than an integral part of the business function, proposals to further incentivise employees to encourage a collaborative ethos and improve business strength may well prove to be an increasingly popular business model. ]]>{5B43E882-93D2-490E-AB9C-703827B0F9FB}https://www.shoosmiths.co.uk/client-resources/legal-updates/beware-of-creating-a-guarantee-by-email-2835.aspxBeware of creating a guarantee by email The decision to guarantee the obligations of another party is not one to be taken lightly. Generally, a guarantee will be documented (and signed) following conclusion of negotiations. However, following the decision in the Golden Ocean Group Ltd case, parties to such negotiations should beware that, where agreeing terms by email is normal business practice, those emails may create an enforceable guarantee. This could be the case even if the requirements of a literal interpretation of the relevant legislation are not complied with. Section 4 of the Statute of Frauds 1677 stipulates that a 'special promise to answer for the debt, default or miscarriage of another person' must be 'in writing and signed by the party to be charged' in order for an action to be brought against them. In the case of Golden Ocean Group Ltd, a chain of emails within which a charter was negotiated was held to fulfil these requirements. Facts Mr Guy Hindley was negotiating the charter of a vessel from Golden Ocean on behalf of SMI. Basic terms were agreed by email, including a guarantee from SMI to Golden Ocean. The intention had been that an agreement, incorporating all of the agreed terms, would be drawn up following negotiations - this was never produced. The final email in the sequence did not refer to the guarantee, and was simply signed off by Mr Hindley as 'Guy'. When the broker refused to take delivery of the vessel, SMI denied that a guarantee had been created, one of their arguments being that there had been no email or signed document incorporating all of the terms that had been agreed. Decision The Court of Appeal did not ultimately determine whether there was a guarantee, but after considering the facts of the case and normal business practice in these types of transactions, it did consider that the chain of emails was sufficient to create such binding obligations. In this market, finalising terms by email was usual, and if there was an intention that the parties intended to be bound by those terms, the fact that all of the terms were not included in one document or email should not prevent the guarantee being enforceable, assuming it was 'signed'. The court confirmed that an electronic signature of the person with authority to enter the contract would suffice, whether that be a first name, initials, or potentially even a nickname. How to avoid inadvertently creating a guarantee With the increasing use of email to negotiate contract terms, it is important to be aware of the risks attached to this type of communication. It is as yet unclear whether a similar decision would be made in other commercial areas or whether the decision will be applied in relation to ship chartering alone, where this type of contract conclusion is commonplace. To minimise the risk of inadvertently creating an obligation: ensure all negotiations are expressly stated to be subject to contract (although this will not be conclusive if the parties behaviour indicates otherwise) where terms are agreed over a series of communications, ensure a final 'recap' or agreement is drafted to document both parties' shared intentions (where terms can be established by reviewing a limited number of documents, the courts are more likely to consider them binding) if you do intend the terms to be binding, ensure they are clear both in relation to the point at which the parties will be bound and to what extent, and that the person negotiating them has sufficient authority to create such obligations beware patterns of behaviour which could imply that informal communications will be binding, and keep a clear audit trail in case issues subsequently arise Case: Golden Ocean Group Ltd v Salgaocar Mining Industries Pvt Ltd [2012] EWCA Civ 265 Tue, 14 Aug 2012 00:00:00 +0100<![CDATA[Suzanne Love ]]><![CDATA[ The decision to guarantee the obligations of another party is not one to be taken lightly. Generally, a guarantee will be documented (and signed) following conclusion of negotiations. However, following the decision in the Golden Ocean Group Ltd case, parties to such negotiations should beware that, where agreeing terms by email is normal business practice, those emails may create an enforceable guarantee. This could be the case even if the requirements of a literal interpretation of the relevant legislation are not complied with. Section 4 of the Statute of Frauds 1677 stipulates that a 'special promise to answer for the debt, default or miscarriage of another person' must be 'in writing and signed by the party to be charged' in order for an action to be brought against them. In the case of Golden Ocean Group Ltd, a chain of emails within which a charter was negotiated was held to fulfil these requirements. Facts Mr Guy Hindley was negotiating the charter of a vessel from Golden Ocean on behalf of SMI. Basic terms were agreed by email, including a guarantee from SMI to Golden Ocean. The intention had been that an agreement, incorporating all of the agreed terms, would be drawn up following negotiations - this was never produced. The final email in the sequence did not refer to the guarantee, and was simply signed off by Mr Hindley as 'Guy'. When the broker refused to take delivery of the vessel, SMI denied that a guarantee had been created, one of their arguments being that there had been no email or signed document incorporating all of the terms that had been agreed. Decision The Court of Appeal did not ultimately determine whether there was a guarantee, but after considering the facts of the case and normal business practice in these types of transactions, it did consider that the chain of emails was sufficient to create such binding obligations. In this market, finalising terms by email was usual, and if there was an intention that the parties intended to be bound by those terms, the fact that all of the terms were not included in one document or email should not prevent the guarantee being enforceable, assuming it was 'signed'. The court confirmed that an electronic signature of the person with authority to enter the contract would suffice, whether that be a first name, initials, or potentially even a nickname. How to avoid inadvertently creating a guarantee With the increasing use of email to negotiate contract terms, it is important to be aware of the risks attached to this type of communication. It is as yet unclear whether a similar decision would be made in other commercial areas or whether the decision will be applied in relation to ship chartering alone, where this type of contract conclusion is commonplace. To minimise the risk of inadvertently creating an obligation: ensure all negotiations are expressly stated to be subject to contract (although this will not be conclusive if the parties behaviour indicates otherwise) where terms are agreed over a series of communications, ensure a final 'recap' or agreement is drafted to document both parties' shared intentions (where terms can be established by reviewing a limited number of documents, the courts are more likely to consider them binding) if you do intend the terms to be binding, ensure they are clear both in relation to the point at which the parties will be bound and to what extent, and that the person negotiating them has sufficient authority to create such obligations beware patterns of behaviour which could imply that informal communications will be binding, and keep a clear audit trail in case issues subsequently arise Case: Golden Ocean Group Ltd v Salgaocar Mining Industries Pvt Ltd [2012] EWCA Civ 265 ]]>{B7BFF685-0BFB-48C8-8533-B9CA10255FCA}https://www.shoosmiths.co.uk/client-resources/legal-updates/winding-up-companies-changes-from-1-march-2012-2265.aspxWinding-up companies: changes from 1 March 2012 Under current Revenue practices it is possible for a company to be dissolved and return its funds to its shareholders as capital, potentially saving shareholders significant amounts of tax The Finance Bill 2012 proposes that this informal practice, contained in extra-statutory concession ESC 16, be placed on a statutory basis. Unfortunately, the proposed statutory enactment incorporates some changes from the current extra statutory concession which would place shareholders at a disadvantage. ESC16 Normally, where a company returns funds to shareholders that are greater than the original capital subscribed, the excess amount is treated as the receipt of a dividend for the shareholder, which is subject to income tax. Where the shareholder is a basic rate taxpayer (i.e. pays tax at 20%) there is no further tax liability. However, higher rate tax payers (being 40% and 50% taxpayers) are liable to additional tax liabilities of 25% and 36.11% respectively on the dividend received. The benefit of ESC C16 is that a shareholder who has sought permission and provided certain assurances to the Revenue can treat the dividend as a capital receipt. This gives rise to a capital gain, and if Entrepreneur's Relief is available the tax charge is at 10%, rather than being taxed at higher income tax rates. New statutory provision The proposed legislation is to apply from 1 March 2012. Under the legislation the amount that can be treated as a capital distribution will be limited to £25,000. If the distribution exceeds this figure the whole sum (excluding the original capital subscribed) will be taxed as income. Where a company has undistributed reserves of more than £25,000, it will first have to reduce the reserves to £25,000 before it distributes the balance as a capital distribution. The reason for the change appears to be a concern on the Revenue's part that ESC C16 can be used to avoid tax by changing income into capital and in turn, paying tax at a lower rate. However, the use of ESC C16 is already governed by a clearance procedure, so clearly the Revenue is already able to identify avoidance opportunities and refuse clearance in appropriate cases. The alternative to doing a pre-liquidation distribution is to appoint a liquidator to wind-up the company, ensuring that all distributions are treated as capital. The disadvantage of this route is the costs associated with appointing a liquidator. In its paper on the subject the Revenue estimate that the cost of appointing a liquidator is about £7,500 for a small business with straightforward affairs. Accepting the Revenue's figure for the cost of liquidators as being accurate means that companies with distributable reserves over £25,000 are going to have to carefully consider whether to take a pre-liquidation dividend rather than appointing a liquidator. This will be largely determined by the shareholders' marginal rate of taxation. Of course, liquidators' costs vary, so it is worthwhile looking at this in more detail. Share capital on liquidation A separate but related issue is that of share capital. Under the Companies Act 2006 shareholders can convert share capital into a distributable reserve by passing a declaration of solvency. This means that prior to a dissolution the shareholders can convert all the share capital except for £1 into distributable reserves, which can then be returned to them as capital using the above described method. If share capital is not reduced in this way and the company is dissolved the Treasury can claim any assets representing the share capital as bona vacantia. Conclusion Given that the new legislation is due to come in by 1 March 2012 shareholders who are intending to dissolve their company under the extra-statutory procedure have a limited window in which to avail themselves of the current Revenue practice. Mon, 23 Jan 2012 00:00:00 Z<![CDATA[Kate Featherstone ]]><![CDATA[ Under current Revenue practices it is possible for a company to be dissolved and return its funds to its shareholders as capital, potentially saving shareholders significant amounts of tax The Finance Bill 2012 proposes that this informal practice, contained in extra-statutory concession ESC 16, be placed on a statutory basis. Unfortunately, the proposed statutory enactment incorporates some changes from the current extra statutory concession which would place shareholders at a disadvantage. ESC16 Normally, where a company returns funds to shareholders that are greater than the original capital subscribed, the excess amount is treated as the receipt of a dividend for the shareholder, which is subject to income tax. Where the shareholder is a basic rate taxpayer (i.e. pays tax at 20%) there is no further tax liability. However, higher rate tax payers (being 40% and 50% taxpayers) are liable to additional tax liabilities of 25% and 36.11% respectively on the dividend received. The benefit of ESC C16 is that a shareholder who has sought permission and provided certain assurances to the Revenue can treat the dividend as a capital receipt. This gives rise to a capital gain, and if Entrepreneur's Relief is available the tax charge is at 10%, rather than being taxed at higher income tax rates. New statutory provision The proposed legislation is to apply from 1 March 2012. Under the legislation the amount that can be treated as a capital distribution will be limited to £25,000. If the distribution exceeds this figure the whole sum (excluding the original capital subscribed) will be taxed as income. Where a company has undistributed reserves of more than £25,000, it will first have to reduce the reserves to £25,000 before it distributes the balance as a capital distribution. The reason for the change appears to be a concern on the Revenue's part that ESC C16 can be used to avoid tax by changing income into capital and in turn, paying tax at a lower rate. However, the use of ESC C16 is already governed by a clearance procedure, so clearly the Revenue is already able to identify avoidance opportunities and refuse clearance in appropriate cases. The alternative to doing a pre-liquidation distribution is to appoint a liquidator to wind-up the company, ensuring that all distributions are treated as capital. The disadvantage of this route is the costs associated with appointing a liquidator. In its paper on the subject the Revenue estimate that the cost of appointing a liquidator is about £7,500 for a small business with straightforward affairs. Accepting the Revenue's figure for the cost of liquidators as being accurate means that companies with distributable reserves over £25,000 are going to have to carefully consider whether to take a pre-liquidation dividend rather than appointing a liquidator. This will be largely determined by the shareholders' marginal rate of taxation. Of course, liquidators' costs vary, so it is worthwhile looking at this in more detail. Share capital on liquidation A separate but related issue is that of share capital. Under the Companies Act 2006 shareholders can convert share capital into a distributable reserve by passing a declaration of solvency. This means that prior to a dissolution the shareholders can convert all the share capital except for £1 into distributable reserves, which can then be returned to them as capital using the above described method. If share capital is not reduced in this way and the company is dissolved the Treasury can claim any assets representing the share capital as bona vacantia. Conclusion Given that the new legislation is due to come in by 1 March 2012 shareholders who are intending to dissolve their company under the extra-statutory procedure have a limited window in which to avail themselves of the current Revenue practice. ]]>